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Weiner Process - Practice Questions

1) The stock price is expected to be $50 * 1.16 = $58 the next day, with a standard deviation of $50 * 0.3 = $15. The 95% confidence limits are $58 ± 1.96 * $15 = $28 to $88. 2) If a = 2 and b = 3, the expected value of x after 3 years following the generalized Wiener process starting at 10 is 10 + 2 * 3 = 30. 3) If a = 3 and b = 4, the standard deviation of x after 4 years following the generalized Wiener process starting at 10 is 4 * √4 = 8.

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52 views

Weiner Process - Practice Questions

1) The stock price is expected to be $50 * 1.16 = $58 the next day, with a standard deviation of $50 * 0.3 = $15. The 95% confidence limits are $58 ± 1.96 * $15 = $28 to $88. 2) If a = 2 and b = 3, the expected value of x after 3 years following the generalized Wiener process starting at 10 is 10 + 2 * 3 = 30. 3) If a = 3 and b = 4, the standard deviation of x after 4 years following the generalized Wiener process starting at 10 is 4 * √4 = 8.

Uploaded by

keshav
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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1.

Suppose that a stock price has an expected return of 16% per annum and a volatility of 30%
per annum. When the stock price at the end of a certain day is $50, calculate the following:
(a) The expected stock price at the end of the next day.
(b) The standard deviation of the stock price at the end of the next day.
(c) The 95% confidence limits for the stock price at the end of the next day.

2. A variable x starts at 10 and follows the generalized Wiener process


dx = a dt + b dz
where time is measured in years. If a = 2 and b =3 what is the expected value after 3 years?

3. A variable x starts at 10 and follows the generalized Wiener process


dx = a dt + b dz
where time is measured in years. If a = 3 and b =4 what is the standard deviation of the value
in 4 years?

4. A stock price is $20. It has an expected return of 12% and a volatility of 25%. What is the
standard deviation of the change in the price in one day. (For this question assume that there
are 365 days in the year.)

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