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Consider a derivative whose payoff is as follows: A - The derivative will expire immediately when the stock price increases by more than 5 0
Consider a derivative whose payoff is as follows:
A The derivative will expire immediately when the stock price increases by more than or decreases by more than as compared to the current stock price, and investors will get the stock price at the time of expiration.
B If the stock price never increases by more than or decreases by more than within oneyear, then investors get the stock price after one year.
What is the value of this derivative? Show the evolution path of its value.
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