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 3-month 70-strike 75-trigger European gap put option on the stock has a positive payoff is 0.3669.

(ii) The 90% lognormal prediction interval for the 6-month stock price is (57.7734, 92.0014).

(iii) The continuously compounded risk-free interest rate is 1.5%.

Calculate the variance of the 9-month stock price.

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Authors: Ambrose Lo

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Question Posted: Dec 07, 2023 06:08 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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