08SimHw7 - IEOR 4404 Simulation Prof. Mariana...

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IEOR 4404 Assignment #7 Simulation October 29, 2008 Prof. Mariana Olvera-Cravioto Page 1 of 2 Assignment #7 – due November 6th, 2008 1. Estimate, using the method described in Lecture 14, the worth of owning an option to sell a stock anytime in the next 20 days for a price of 100 if the present price of the stock is 99. Assume that the price of the stock follows geometric Brownian motion with risk free parameters r = 0 . 04 and σ = 0 . 3. ( r denotes the annual risk-free interest rate). 2. Continue to generate standard normal random variables until you have generated n of them, where n 100 is such that p S 2 ( n ) /n < 0 . 01, where S 2 ( n ) is the sample variance of the n data values. (a) How many normals do you think will be generated? (b) How many normals did you generate? (c) What is the sample mean of all the normals generated? (d) What is the sample variance? (e) Comment on the results of (c) and (d). Were they surprising? 3. For any set f numbers
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08SimHw7 - IEOR 4404 Simulation Prof. Mariana...

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