Question
Suppose you are high frequency trading of stocks, if the current price of the stock is...
Suppose you are high frequency trading of stocks, if the current price of the stock is 5% higher than the purchase price then you will buy. Suppose that a stock follows a Standard Geometric Brownian Motion lifted by the current market price of $20? What is the probability that the stock price is ready to buy after T units of time later? Evaluate for for multiple values of T and the plot the distribution with respect to T.
Homework Answers
Answer #1
Not the answer you're looking for?
Similar Questions
17.Consider a binary (digital) option on a stock currently trading at $100. The option pays a...
17.Consider a binary (digital) option on a stock currently
trading at $100. The option pays a $1 if the stock price goes above
$100 in three months. The annualized standard deviation of the
stock is 20%, and the risk-free rate is 0%. Suppose you sold a 100
of these binary options. How many shares of the underlying stock
you need to long to achieve a delta-neutral position?
Hint: Assume that the stock price evolves with respect to a
geometric Brownian...
1. Suppose that the price of Goldman Sachs stock is currently $142 per share. You expect...
1. Suppose that the price of Goldman Sachs stock is currently
$142 per share. You expect that the firm will pay a dividend of
$1.40 per share at the end of the year, at which time you expect
that the stock will be selling for $160 per share. Also, suppose
other than stock trading, you have an opportunity to earn 8% rate
of return from a mutual fund which is in general safer than stocks.
Should you buy the stock...
Do you know that approximately 70% of all trading activity in modern markets consists of computers...
Do you know that approximately 70% of all trading activity in
modern markets consists of computers trading against other
computers? At the bottom of page 65 in your text, you will see the
"NEW TRADING STRATEGIES" section of your chapter. The rise of
algorithmic and high-frequency trading have raised all sorts of
questions related to speed, fairness, and stability. For example,
the Flash Crash, occurring on May 6, 2010, saw the market (i.e.
DJIA) fall 1000 points only to partly...
. Suppose you purchase a stock for $100. Assume your expectations regarding the stock price are...
. Suppose you purchase a stock for $100. Assume your
expectations regarding the stock price are as follows:
State of the Economy
Probability
Year end price
Cash dividends
Holding period return(HPR)
Boom
0.3
129.50
4.50
0.34
Normal growth
0.5
110.00
4.00
0.14
Recession
0.2
80.50
3.50
-0.16
Compute the Mean and standard deviation of the HPR on
stocks.
Suppose you believe that the price of Stock X is going to increase from its current...
Suppose you believe that the price of Stock X is going to
increase from its current level of $18 during the next several
months. For $4 you buy a call option giving you the right to buy 1
share at a price of $24 per share.
a. What is the exercise value of the option now?
b. What is the time value of the option?
c. Calculate the net profit (dollars) if the option is purchased
and the stock price...
Suppose you believe that Johnson Company's stock price is going to increase from its current level...
Suppose you believe that Johnson Company's stock price is going
to increase from its current level of $22.50 sometime during the
next 5 months. For $400 you can buy a 5-month call option giving
you the right to buy 100 shares at a price of $25 per share. If you
buy this option for $400 and Johnson's stock price actually rises
to $36, would you exercise your call option? And what would be your
pre-tax net profit or loss from...
Suppose you believe that Johnson Company's stock price is going to increase from its current level...
Suppose you believe that Johnson Company's stock price is going
to increase from its current level of $40 sometime during the next
5 months. For $500 you can buy a 5-month call option giving you the
right to buy 100 shares at a price of $60 per share. If you buy
this option for $500 and Johnson's stock price actually rises to
$62, would you exercise your call option? AND what would be your
pre-tax net profit or loss from...
Suppose the current price of a share of ABC stock is $188. You buy a call...
Suppose the current price of a share of ABC stock is $188. You
buy a call option (June 2020 expiration date and $190 strike price)
on ABC stock at a call premium of $4. If the price of ABC stock on
the expiration day is $189, the payoff and profit of your
investment on the call option will be:
A.
$1 (payoff) and $3 (profit)
B.
$1 (payoff) and $5 (profit)
C.
$1 (payoff) and -$3 (profit)
D.
$0 (payoff)...
a) Consider a stock whose current price is 50 and whose price at some ) &!...
a) Consider a stock whose current price is 50 and whose price at
some ) &!
fixed time T in the future may X be one of the following
values:48,49,50, 51". Suppose we estimate that the probabilities of
these stock
prices are
p(48)=0.2
p(49)=0.4
p(50)=0.3
p(51)=0.1
If we purchase one share of the stock now, what is the expected
return
at T time ? What is the expected profit?
b Consider a derivative of the stock in part a) whose
return...
Suppose that you wish to invest in two stocks which both have a current price of...
Suppose that you wish to invest in two stocks which both have a
current price of $1. The values of these two stocks in one month
are described by two random variables, say, X1 and
X2. Suppose that the expected values and
standard deviation of X1 and
X2 are μ1, μ2, σ1 and
σ2, respectively. We also assume that the correlation
between the stocks is given by ρ.
Let c denote your initial investment, which is to be invested in...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 3 minutes ago
asked 21 minutes ago
asked 26 minutes ago
asked 43 minutes ago
asked 46 minutes ago
asked 48 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago