Question
A stock price is currently $10. It is known that at the end of three months it will be either $11 or $8.5. The riskfree
A stock price is currently $10. It is known that at the end of three months it will be either $11 or $8.5. The riskfree interest rate is 5% per annum with continuous compounding. SupposeST is the stock
price at the end of three months.
Question: What is the value of a derivative that pays offln(ST) at this time? Useboth the no arbitrage
and risk neutral valuation approach.
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Financial Management Core Concepts
Authors: Raymond Brooks
4th Edition
134730417, 134730410, 978-0134730417
