5. Digitals. As seen in the proof of BSM, for a call N(d2) = P[A(te)/F > K/F] = P[A(te) > K] = = = i.e., N(d2) is the probability that the call option finishes in the money, al Transport = = = (a) With A(0) 100,0 = 10%, te 1/2, r = 5%, compute the 5, value of the following 6-month expiry digital payoff: $1,000,000 if A(te) > 100 and 0 otherwise. (b) Using same values as above, compute the value of a 6-month ex- piry knock-in call with payoff max(0, A(te) 100), but only if A(te) > 110 (See last payoff in Figure 5.9). a 2 Straddle Strangle Collar Spread Ratio Fly al Technic x2 x2 Digital Knock-in and Figure 5.9: European style option payoffs