The following question relates to the Black-Scholes model, which is based on a geometric Brownian motion. You
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The following question relates to the Black-Scholes model, which is based on a geometric Brownian motion. You are asked to price a one-year range option where the option pays off $100 at the end of each month if the price of the stock lies between $90 and $110. If you set this problem up on a finite-differencing lattice, how would you handle the values at the upper and lower boundaries of the lattice?
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Since the option triggers a monthly payment only within a tight band of stock values the extremities ...View the full answer
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