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4. Valuation of a Derivative Consider a derivative on a stock 1with the time to expiration T and the following payoff: ifST{K1 K1 ilegSyng {J

4. Valuation of a Derivative Consider a derivative on a stock 1with the time to expiration T and the following payoff: ifST{K1 K1 ilegSyng {J inggST where Kg 3:: K1. What is the present value of the derivative? Provide an analytic expression of the price using NU, the cumulative probability distribution function of a standard normal random variable

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