Unique Paper Code : 32377911

Name of the Paper : Financial Statistics DSE-4

Name of the Course : B.Sc. (H) Statistics Under CBCS
Semester : VI
Duration : 2 hours (1 hour additional for downloading of
the Question paper and Scanning and uploading
of the Answer sheet)
Maximum Marks : 75

Instructions for Candidates

1. Attempt any four questions.
2. All questions carry equal marks.
3. Use of Calculators is allowed.
1. A pharmaceutical company ABC has a 4-year project with the following
projected cashflows in (₹):

Initial cost 2,40,000

Year Cashflow
Ist Year 25,000
IInd Year 75,000
IIIrd Year 1,50,000
IVth Year 1,50,000

Conclude whether the company project manager should accept or reject the
project on using a discount rate of (i) 10%, (ii) 20% for this project.

2. Construct the payoff table along with the payoff graph for the following two
alternative strategies:

Strategy 1: consists of buying a European call option with a strike price

$110 and selling a call option on the same stock with higher strike price of
$120. Both call options have same expiration date.

Strategy 2: consisting of a long call with delivery price $40 and a long put
with delivery price $40; and same expiration date.
𝑡
3. Compute the stochastic integral ∫0 𝑊(𝑠)𝑑𝑊(𝑠) in the 𝐼𝑡𝑜̂ sense, where
{𝑊(𝑡), 𝑡 ≥ 0} is the Wiener process. State its value in the 𝑆𝑡𝑟𝑎𝑡𝑜𝑛𝑜𝑣𝑖𝑐ℎ
sense.

4. Assume that the process for 𝑆𝑡 is Wiener process with constant drift in the
form dSt =  dt +  dWt , where Wt is a standard Wiener process. Obtain the
dynamics of the process 𝑌𝑡 = 𝑙𝑜𝑔(𝑆𝑡 ).

5. Consider the following two forms of the general Itô - process to model
stock price 𝑆𝑡 with only two unknown parameters 𝜇 and 𝜎.
(1)
(2)
Identify and compare the two models in equations (1) and (2).
Bring out an appraisal of the equation (1) justifying its suitability to
model stock price.

6. Calculate the delta of an at-the-money nine-month European call option.

Given that the underlying stock is non-dividend paying, the risk-free
interest rate is 7% per annum and the volatility of the stock price is 22% per
annum.

Table of Ф(z) or CDF of N[0,1] values

z= -0.17 0.17 0.27 0.37 0.47 0.57 0.67
Ф(z) = 0.4325 0.5674 0.6064 0.6443 0.6808 0.7156 0.7485