Suppose you observe the following month-end stock prices for stocks Y and Z:Day

01234

Stock Y10010510297100

Stock Z10010515097100

Computethe following for each stock.

a. The mean monthly continuously compounded return

b. The annual return

c. The mean monthly standard deviation

d. The mean annual standard deviation

Use Monte Carlo tocomputeprices for claims that pay the following if S₀= 100, r= 0.06, _S= 0.4 and = 0:

a. S²1

b. S₁

c. S₁^-2

Suppose S(0)= 100, r= 0.06, S= 0.4 and = 0. Use the equation below tocomputeprices for claims that pay the following:F^p_0.1(S^a) =S^a₀exp((a-1)r+1/1a(a-1)²)

a. S²

b. S

c. S^-2

Compareyour answers in question 3 to the ones you obtained in question 2.