AS 2503/5106
Exercises, Chapter A
[A]
Fall 2016
Introduction to Derivatives (M, Ch. 1)
A-1
ABC stock has a bid price of $40.95 and an ask price of $41.05. Assumer the brokerage fee is
quoted as 0.3% o
Thus, if a $3 reward were earned each period, the total reward earned during an innite number of periods would be unbounded, but the average reward per period would equal $3.
In our discussion of inni
VB 490.23. These values agree with those found via the policy iteration method. The
LINDO output also indicates that the rst, second, fourth, and seventh constraints have
no slack. Thus, the optimal p
not an optimal policy. In this case, modify d so that the decision in each state i is the decision attaining the minimum in (16) for Td (i). This yields a new stationary policy d for
which Vd(i) Vd (i
SUMMARY
Key to Formulating Probabilistic Dynamic
Programming Problems (PDPs)
Suppose the possible states during period t 1 are s1, s2, . . . sn, and the probability that
the period t 1 state will be s
AS 2503/5106
Solutions, Chapter C
Fall 2016
C-5
Solution:
By the put-call parity:
500.00 + 18.64 = 66.59 + e0.061 K ,
and thus K = 480 .
C-6
Solution:
Answer: E. There are (at least) two ways to think
AS 2503/5106
Exercises, Chapter B
[B]
Fall 2016
Introduction to Forwards & Options (M, Ch. 2)
B-1
Farmer Tom planted 100 acres of corn. He is concerned that the corn price will go down by the
time he
AS 2503/5106
Solutions, Chapter B
Fall 2016
B-5
Solution:
I only. The purchaser has no choice in the transaction except to accept delivery of the
asset or make a financial settlement. (A forward contr
AS 2503/5106
Exercises, Chapter D
[D]
Fall 2016
Intro to Risk Management (M, Ch. 4)
D-1
A firm has a 70% chance of making a $800 profit, and a 30% change of suffering a $500 loss
next year. The approp
We let d represent an arbitrary policy and represent the set of all policies. Then
Xt random variable for the state of MDP at the beginning of period t (for
example, X2, X3, . . . , Xn)
X1 given state