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 continuously compounded expected rate of stock-price appreciation is 7%.
(ii) The continuously compounded risk-free interest rate is 2%.
(iii) The 95% lognormal prediction interval for the 2-year stock price is (45.7693, 241.4658).
Calculate the probability that the payoff of a 3-year 96-strike 103-trigger European gap put option is negative.
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