Consider an asset with zero volatility. We can explicitly calculate the future value of the asset and
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Consider an asset with zero volatility. We can explicitly calculate the future value of the asset and hence that of a call option with the asset as the underlying. The value of the call option will then depend on the growth rate of the asset, μ. On the other hand, we can use the explicit formula for the call option, in which μ does not appear. Explain this apparent contradiction.
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Explanation The apparent contradiction is due to the fact that the future val...View the full answer
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Labindao Antoque
I graduated in 2018 with a Bachelor of Science degree in Psychology from Dalubhasaan ng Lungsod ng San Pablo. I tutored students in classes and out of classes. I use a variety of strategies to tutor students that include: lecture, discussions about the subject matter, problem solving examples using the principles of the subject matter being discussed in class , homework assignments that are directed towards reinforcing what we learn in class , and detailed practice problems help students to master a concept. I also do thorough research on Internet resources or textbooks so that I know what students need to learn in order to master what is being taught in class .
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