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1.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?

A.12

B.14

C.16

D.18

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?

A.12

B.14

C.16

D.18

Answer: C

The drift is 2 per year and so the expected increase over three years is 2×3 = 6 and the expected value at the end of 3 years is 10+6 = 16.

The drift is 2 per year and so the expected increase over three years is 2×3 = 6 and the expected value at the end of 3 years is 10+6 = 16.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015