A fund manager scrutinizing the record of two market timers comes up with this informati...

A fund manager scrutinizing the record of two market timers comes up with this information:

a. What are the conditional probabilities, P₁ and P₂ , and the total ability parameters for timers A and B?

b. Using the data given in this problem, and the historical data in the previous problem, what is a fair monthly fee for the two timers?

Previous problem. Historical data suggest the standard deviation of an all-equity strategy is about 5.5% per month. Suppose the risk-free rate is now 1% per month and market volatility is at its historical level. What would be a fair monthly fee to a perfect market timer, according to the Black-Scholes formula?