Assuming that the stock price satisfies equation (20.20), verify that Ker(Tt) + S(t)e(Tt) satisfies the Black-Scholes equation,

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Assuming that the stock price satisfies equation (20.20), verify that Ke−r(T−t) + S(t)e−δ(T−t) satisfies the Black-Scholes equation, where K is a constant. What is the boundary condition for which this is a solution? Discuss.

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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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Question Posted: Dec 18, 2015 05:15 AM

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Assuming that the stock price satisfies equation (20.20), verify that Ker(Tt) + S(t)e(Tt) satisfies the Black-Scholes equation,

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Defining V S t Ke r T t Se T t we have V t rKe r T t ...View the full answer

Derivatives Markets

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