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A stock price is governed by the following process dS = Sdt +Sdz where the expected return = 0.10 and the volatility = 0.2. The
A stock price is governed by the following process
dS = Sdt +Sdz where the expected return = 0.10 and the volatility = 0.2. The
current stock price is $1280.
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What is the probability for the stock price to be higher than $1300 in one year time?
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Suppose there is a call option written on this stock with a strike K = $1300 and maturity T = 1 year. The continuously compounded risk-free risk is 10%. What is the risk-neutral probability for the call option to be in-the-money?
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Why is there a difference between the results in parts (a) and (b)?
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