Question Details

(Solution) - Assume that the return Rt of a stock has the

Brief item decscription

Solution download


Item details:

Assume that the return Rt of a stock has the following log-normal distribution for fixed t:
log (Rt) ~ N(?, ?2).
Suppose we let the density of log(Rt) be denoted by f(Rt) and hypothesize that ? = .17. We further estimate the variance as ?2 = .09.
(a) Find a function ?(Rt) such that under the density, ?(Rt)f(Rt), Rt has a mean equal to the risk-free rate r = .05.
(b) Find a ?(Rt) such that Rt has mean zero.
(c) Under which probability is it ?easier? to calculate

(d) Is the variance different under theseprobabilities?

 







About this question:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Jul 11, 2017

PRICE: $15

Solution~000261486187.zip (18.37 KB)

Buy this answer for only: $15

Pay using PayPal (No PayPal account Required) or your credit card. All your purchases are securely protected by PayPal.
SiteLock

Need a similar solution fast, written anew from scratch? Place your own custom order

We have top-notch tutors who can help you with your essay at a reasonable cost and then you can simply use that essay as a template to build your own arguments. This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student. New solution orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.

Order Now