Suppose that the current stock price is $30 per share. At the end of 6 months, the

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Suppose that the current stock price is $30 per share. At the end of 6 months, the stock price will be either $25 or $38. The 6-month effective risk-free interest rate is 10%.

A European-type derivative written on this stock has its payoff in 6 months equal to

where S(T) is the stock price at maturity.

Calculate the current price of this derivative.

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Derivative Pricing

ISBN: 9780367734213

1st Edition

Authors: Ambrose Lo

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Question Posted: Nov 22, 2023 08:11 AM

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Suppose that the current stock price is $30 per share. At the end of 6 months, the

Question:

[S(T) - 32] + [28 - S(T)]³,

Step by Step Answer:

The payoff of the special derivative is V u 38 32 ...View the full answer

Derivative Pricing

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