FM5002-HW12-5.2.12

# 0060 let x represent the price three months from now

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: tial NOT of the drift but rather of the "augmented" drift. Assume that the an nualized volatility is 0.35. (In the following problems, use 3 mon ths = 0.25 years.) FM5002−HW12−5.2.12.nb 5 a . Fin d the an nual drift. b. Fin d the 3 − month volatility. c. Find the 3 − mon th drift. ex a. Let x be the ann ual drift . Then E S1 b. The 3 month volatility is 0.35 1 2 0.35 2 1.02, so that x 0.0414474. 0.175. 4 c. The 3 mon th drift is 0.0414474 4 0.00103618. 0060− . We analyze a particular stock over a time interval that starts today, an d exten ds 100 days in to the future. Assume that 2 the curren t price is \$5 per share. Assume that the ann ualized drift is 2.5 %, that the an n ualized volatility is 40 %. Use the 70 − 30 400 − subperiod CRR model. a. Fin d the 6 hour uptick an d down tick factors that calibrate to the above data. b. Write a summation expression with bin omial coefficien ts for the expected price of...
View Full Document

## This note was uploaded on 01/19/2014 for the course MATH 5002 taught by Professor Adams during the Spring '08 term at Minnesota.

Ask a homework question - tutors are online