ass3_W2012 - STAT/ACTSC 446/846 Assignment #3 (due March 6,...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: STAT/ACTSC 446/846 Assignment #3 (due March 6, 2012) (1) Using a three-period binomial model, calculate the value a 3-month American call option on a dividend-paying stock with current price $10 and exercise price of $10. The dividend is due at the end of the first month and is equal to $0.50. The volatility of the stock is 15%, and the continuously compounded risk-free interest rate is 4% per year for bonds with maturity less than or equal to 1 month and 4.5% for bonds with maturity longer than 1 month. (2) Let us define a stochastic process X t = √ tW , where W ∼ N (0 , 1). Answer the following: (a) Does this process have continuous trajectories? (b) What are the marginal distributions of the process (i.e., what is the distribution of X t for t > 0)? (c) Is { X t } a Brownian motion? Explain your answers. (3) Let { B t } t ≥ be standard Brownian motion. Which of the following are Brownian motions?...
View Full Document

This note was uploaded on 03/05/2012 for the course ACTSC 446 taught by Professor Adam during the Winter '09 term at Waterloo.

Page1 / 2

ass3_W2012 - STAT/ACTSC 446/846 Assignment #3 (due March 6,...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online