MathematicalModels
posted by RVE
Consider the BlackScholesMerton model for two stocks:
dS1(t)=0.1S1(t)dt+0.2S1(t)dW1(t)
dS2(t)=0.05S2(t)dt+0.1S2(t)dW2(t)
Suppose the correlation between W1 and W2 is 0.4. Consider the dynamics of the ratio S1/S2, where A,B,C,D,F,G,I,J,K,L are constants to be found:
d(S1(t)/S2(t))=(ASB1(t)+C)SD2(t)dt+FSG1(t)SI2(t)dW1(t)+JSK1(t)SL2(t)dW2(t)
Hint: it may help to write down first the explicit expression for the ratio.
Enter the value of A:
correct
0.05
Enter the value of B:
correct
1
Enter the value of C:
correct
0
Enter the value of D:
correct
−1
Enter the value of F:
correct
0.2
Enter the value of G:
correct
1
Enter the value of I:
correct
−1
Enter the value of J:
correct
−0.1
Enter the value of K:
correct
1
Enter the value of L:
correct
−1

Anonymous
Please help me with this variation:
Consider the BlackScholesMerton model for two stocks:
dS1(t)=0.1S1(t)dt+0.2S1(t)dW1(t)
dS2(t)=0.05S2(t)dt+0.1S2(t)dW2(t)
Suppose the correlation between W1 and W2 is 0.4. Consider the dynamics of the ratio S2/S1, where A,B,C,D,F,G,I,J,K,L are constants to be found:
d(S2(t)/S1(t))=(AS1B(t)+C)S2D(t)dt+FS1G(t)S2I(t)dW1(t)+JS1K(t)S2L(t)dW2(t)
Enter the value of A:
Enter the value of B:
Enter the value of C:
Enter the value of D:
Enter the value of F:
Enter the value of G:
Enter the value of I:
Enter the value of J:
Enter the value of K:
Enter the value of L:
Respond to this Question
Similar Questions

sciencechem question
Hello I have another hybridization question. For example in BeF2 ... the electron configuration is 1s2, 2s2, 2p1. It gets hybridized to 1s2, 2s1, 2p2. I know that it will be a sp2 hybridization but I'm not exactly sure why. It's because … 
MathematicalModels
Consider a BlackScholesMerton model with r=0.1, T=0.5 years, S(0)=100. Suppose the BlackScholes price of the digital option that pays one dollar if S(T)≥100 and zero otherwise, is equal to 0.581534. Enter the value of volatility … 
MathematicalModels
The price of a US stock is given by dS(t)/S(t)=μdt+σdW1(t) The exchange rate Dollar/Euro is given by dQ(t)/Q(t)=βdt+δdW2(t) where W1 has correlation ρ with W2. >> (i) Select the Brownian motions W∗1 … 
MathematicalModels
Consider the Vasicek model for the short rate dr(t)=(b−ar(t))dt+γdW1(t) and the BlackScholesMerton model for a stock S dS(t)=r(t)S(t)dt+σS(t)dW2(t) where W1 and W2 are Brownian motions under the riskneutral probability, … 
mathematicalmodel
You take a short position in one European put option contract, with strike price 100 and maturity six months, on a stock that is trading at 100. The annual volatility of the stock is constant and equal to 25%. The dividend rate is … 
FINANCE
You take a short position in one European put option contract, with strike price 100 and maturity six months, on a stock that is trading at 100 . The annual volatility of the stock is constant and equal to 25 % . The dividend rate … 
Finance, Math
You take a short position in one European put option contract, with strike price 100 and maturity six months, on a stock that is trading at 100. The annual volatility of the stock is constant and equal to 25%. The dividend rate is … 
Finance, Math
You take a short position in one European put option contract, with strike price 100 and maturity six months, on a stock that is trading at 100. The annual volatility of the stock is constant and equal to 25%. The dividend rate is … 
Economics(pls Help)
Zoe Goggles is a deep sea underwater photographer. Her camera and lenses are valued at $4,000. There is a chance of 1/20 that she will lose her equipment on a dive over the course of the year. Her wealth, including the value of her … 
Physical Chemistry
26.Use RussellSaunders LS coupling to derive the ground state levels of (a) Ne (b) F (c) Sc (d) Zr (e) C. 30. a. Construct a Grotrian diagram for the He emission spectrum (shown on the right) and use it to assign as much of this spectrum …