Assume the Black-Scholes framework. For a stock which pays dividends continuously at a rate proportional to its

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Assume the Black-Scholes framework. For a stock which pays dividends continuously at a rate proportional to its price, you are given:

(i) The probability that an 8-month European put option on the stock will be exercised is 0.512.

(ii) The expected 8-month stock price is 10.134.

(iii) The expected 8-month stock price, given that the put option in (i) expires in-the-money, is 8.483.

Determine the 98% lognormal prediction interval for the 8-month stock price.

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Derivative Pricing

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Authors: Ambrose Lo

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Question Posted: Nov 22, 2023 08:18 AM

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Assume the Black-Scholes framework. For a stock which pays dividends continuously at a rate proportional to its

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From i ii and iii we have 10134 i Nd 0512 ii S0ea8T iii S 0ea...View the full answer

Derivative Pricing

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