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, see 5.30. = = (a) With A(0) 100,0 10%, te 1/2,r 5%, compute the 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, Ate) 100), but only if Ate) > 110 (See last payoff in Figure 5.9). 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, see 5.30. = = (a) With A(0) 100,0 10%, te 1/2,r 5%, compute the 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, Ate) 100), but only if Ate) > 110 (See last payoff in Figure 5.9)