(1) The SDE dS=0.13Sdt+0.26SdW is the real world model for the stock price dynamics and the current price of the stock is S(0)=100. The quantity (r)/, called the Sharpe-ratio, is used to rank risky ventures. The larger the Sharpe-ratio the more attractive the investment opportunity. If the Sharpe ratio of the stock is 0.50 calculate the price of a European at-the-money call option that will expire four years from now.

The following answers are proposed. (a) V(0)=28.04 (b) V(0)=26.51 (c) V(0)=24.74 (d) V(0)=22.19 (e) V(0)=20.51