Statistics...Randomization~?

alvinchou2003

2008-08-19 6:48 pm

Random Variables

22. Day trading again. An option to buy a stock is priced at $200. If the stock closes above 30 on May15, the option will be worth $1000. If it closes below 20, the option will be worth nothing, and if it closes between 20 and 30 (inclusively), the option will be worth $200. A trader thinks there is a 50% chance that the stock will close in the 20-30 range, a 20% chance that it will close above 30, and a 30% chance that it will fall below 20 on May 15.

a) Should she buy the stock option?
b) How much does she expect to gain?
c) What is the standard deviation of her gain?

Please show me the steps...THANKS!!!

回答 (1)

[匿名]

2008-08-19 7:18 pm

✔ 最佳答案

a) ANSWER: Yes! She should buy stock option.
Why???

Expected Profit greatly exceeds Expected Loss [$500 > -$100]

b) ANSWER: $500

Why???
Expected Profit = Expected Option Value - Cost

Expected Option Value:
E(X) = Σx * P(X = x) = SUM[($200 * 0.5) + ($1,000 * 0.2) + ($0.00 * 0.3)] = $600

Cost = $100

c. ANSWER:

STANDARD DEVIATION = SQUARE ROOT {Σx² * P(X = x) }- (E(X))²

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