2. Consider the valuation of a European-style derivatives on Stock 1. Assume that the stock pays no dividend. Recall the Black-Scholes equation: 1 32 f af at trs af as +0252 =rif, - f(ST, T) = 7(ST), - (2) ' as2 where f represents the price of the derivative, a(St) is the terminal payoff. The continuously-compounded annual risk-free rate is represented by r. (a) (Ratio derivative) A ratio derivative can be described as follows: two time points 0