ACT460H1 Final: SampleFinalSoln
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Act460/sta2502 sample final: (12 points) for each of the following statements, indicate whether it is true or false, and brie y explain your answer. A correct explanation is required for full marks. 1: (12 points) explain the following concepts. (a) (3 points) stopping time (in a continuous time setting) (b) (3 points) implied volatility (c) (3 points) cross variation (d) (3 points) fundamental theorem of asset pricing. Page 3 of 9: (12 points) consider the 1-period trinomial model so that = {h, e, t }. The (ex-dividend) stock price process s satis es s0 = 24, s1(h) = 35, s1(e) = 27 and s1(t ) = 20. The stock pays a dividend of per share at time 1 if its price increases from time 0 to time 1. The actual probability measure is p(h) = p(e) = p(t ) = 1/3. The interest rate is r = 1/4. (a) (6 points) find all risk-neutral measures p.
