Assume that the volatility of the S&P index is 30%. a. What is the price of a

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Assume that the volatility of the S&P index is 30%.
a. What is the price of a bond that after 2 years pays S2 + max(0, S2 − S0)?
b. Suppose the bond pays S2 + [λ × max(0, S2 − S0)]. For what λ will the bond sell at par? Discuss.

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Derivatives Markets

ISBN: 978-0321543080

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Authors: Rober L. Macdonald

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Question Posted: Dec 18, 2015 05:10 AM

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Assume that the volatility of the S&P index is 30%. a. What is the price of a

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