Logo
Home Study Material Contact Search
AI Chat FREE
  1. mathematics
  2. basic math
  3. a certain stock has low volatility on some days an

A certain stock has low volatility on some days and high volatility on other days...

50.1K

Verified Solution

Question

Basic Math

image

A certain stock has low volatility on some days and high volatility on other days Suppose that the probability of a low volatility day is p and of a high volatility day is q 1 p and that on low volatility days the percent change in the stock price is N 0 o while on high volatility days the percent change is N 0 0 with a 02 Let X be the percent change of the stock on a certain day The distribution is said to be a mixture of two Normal distributions and a convenient way to represent X is as X I1X1 I2X2 where I is the indicator r v of having a low volatility day I2 1 4 X N 0 03 and I1 X1 X2 are independent a Find Var X in two ways using Eve s law and by calculating Cov I X 12X2 11X1 12X2 directly b Recall from Chapter 6 that the kurtosis of an r v Y with mean and standard deviation is defined by E Y 04 Kurt Y 3 Find the kurtosis of X in terms of p q oi o fully simplified The result will show that even though the kurtosis of any Normal distribution is 0 the kurtosis of X is positive and in fact can be very large depending on the parameter values

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Chemistry
1.2K views

in GC calibration curve, which concentration remains constant and which one changes? (analyte vs internal standard)

Biology
1.2K views

When a plant grows, the atoms used come from carbon dioxide in the air and water....

Psychology
1.2K views

Define an “enmeshed” family, AND provide TWO examples of behaviors that might characterize an “enmeshed” family....

Physics
1.2K views

For what value of P the point 1 1 2 3 and P 2 will...

Geometry
1.2K views

5 4 3 2 114 2 JN 17 IN 2 M 4 5 What is...

Basic Math
1.2K views

Ten people were surveyed to find out which type of movie released last year was...

Basic Math
1.2K views

Use the quadratic formula to solve the equation: 4x - 26x - 42 = 0Ox=...

Algebra
1.2K views

15 Consider the graph of the function f a Find the domain and range of...

Algebra
1.2K views

Once the conclusion is drawn for the hypothesis test, which of the following cannot happen?Type...

Accounting
1.2K views

Part #5: At the beginning of September, L Company had 1,600 finished goods units. Budgeted...

Accounting
1.2K views

At the end of the year, the subsidiary reported the following trial balance: Exchange rates...

Accounting
1.2K views

#2. You have a client that is considering trading machinery with another company. Although the...