Unformatted text preview: 3. The value of the MNO stock is given by a lognormal variable Y with parameters μ = 0 . 2, σ 2 = 0 . 25. The stocks ABC and MNO behave independently. Let the random variable Z be the value of the portfolio. (a) Give a formula for Z . (b) Calculate the expected value and the variance of the portfolio. 2. A MODEL for the MOVEMENT of STOCK PRICES . 7. Let S (0) be the initial price of a stock. Let S ( n ) be the price of the same stock at the end of the n th week, n ≥ 1. Assume that the evolution of these prices follows the rule that S ( n +1) S ( n ) are independent log-normal variables with lognormal parameters μ = 0 . 0165, σ = 0 . 0730 for n ≥ 0. (a) What is the probability that the price of the stock at the end of the ﬁrst week is higher than the initial price? (b) What is the probability that the price of the stock at the end of the second week is higher than the initial price? 1...
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This note was uploaded on 02/27/2012 for the course MATH DEPAR 457 taught by Professor Francsics during the Spring '12 term at Michigan State University.
- Spring '12