This flashcard is just one of a free flashcard set. See all flashcards!
229
9.A variable x starts at zero and follows the generalized Wiener process
dx = a dt + b dz
where time is measured in years. During the first two years a=3 and b=4. During the following three years a=6 and b=3. What is the expected value of the variable at the end of 5 years
A.16
B.20
C.24
D.30
dx = a dt + b dz
where time is measured in years. During the first two years a=3 and b=4. During the following three years a=6 and b=3. What is the expected value of the variable at the end of 5 years
A.16
B.20
C.24
D.30
Answer: C
During the first two years, the drift per year is 3 and so the total drift is 3×2 or 6. During the next three years, the drift per year is 6 and the total drift is 6×3 = 18. The total drift over the five years is 6+18 =24. Given that the variable starts at zero, its expected value at the end of the five years is therefore 24.
During the first two years, the drift per year is 3 and so the total drift is 3×2 or 6. During the next three years, the drift per year is 6 and the total drift is 6×3 = 18. The total drift over the five years is 6+18 =24. Given that the variable starts at zero, its expected value at the end of the five years is therefore 24.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015