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10.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 the standard deviation of the value of the variable at the end of 5 years
A.6.2
B.6.7
C.7.2
D.7.7
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 the standard deviation of the value of the variable at the end of 5 years
A.6.2
B.6.7
C.7.2
D.7.7
Answer: D
The variance per year for the first two years is 42 or 16. The variance per year for the next three years is 32 or 9. The total variance of the change over five years is 2×16+3×9= 59. The standard deviation of the value of the variable at the end of the five years is therefore
The variance per year for the first two years is 42 or 16. The variance per year for the next three years is 32 or 9. The total variance of the change over five years is 2×16+3×9= 59. The standard deviation of the value of the variable at the end of the five years is therefore
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015