Exercise 14.8 (Digital Option) Suppose that the price process {S(t)} under the risk-neutral probability measure Q is

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Exercise 14.8 (Digital Option) Suppose that the price process {S(t)} under the risk-neutral probability measure Q is given by (14.41), and consider a contingent claim that pays $1 at maturity T only when the event {S(T) ≥ K}

occurs. Obtain the premium of this derivative.

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