40 1. Assume that the yield curve is flat and one-month risk free rate is 4% per annum. Assume that St USD, and 1 ST = St exp ((-; -*(71 (T t) +0V(T t)e for T > t with (annualized) o = 20%. (a) Using a simulation method, price a down-and-in put option expiring in 1 month with a strike price of 40 and a barrier of 35. (b) Using a simulation method, price a down-and-in put option expiring in 1 month with a strike price of 40 and a barrier of 39. (c) Give intuitive reasons for the different prices of the two options above. 40 1. Assume that the yield curve is flat and one-month risk free rate is 4% per annum. Assume that St USD, and 1 ST = St exp ((-; -*(71 (T t) +0V(T t)e for T > t with (annualized) o = 20%. (a) Using a simulation method, price a down-and-in put option expiring in 1 month with a strike price of 40 and a barrier of 35. (b) Using a simulation method, price a down-and-in put option expiring in 1 month with a strike price of 40 and a barrier of 39. (c) Give intuitive reasons for the different prices of the two options above