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 a 2-year at-the-money European put option on the stock will be exercised is 0.5279.

(ii) The 99% lognormal prediction interval for the 3-year stock price is (9.4493, 524.0208).

Calculate the expected 4-year 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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Derivative Pricing

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