Question
Eric does not follow the delta-property. He has just paid $215 for a certificate that allows him to call the flip of an unfair coin.
Eric does not follow the delta-property. He has just paid $215 for a certificate that allows him to call the flip of an "unfair" coin. If he calls it correctly he will win $500. If he calls it incorrectly he will win $0. His PISP for the certificate is $315.
The clairvoyant offers to tell Eric the outcome of the impending coin toss. What is Eric's PIBP for the clairvoyant's information?
| a. $185 | |
| b. Need Eric's u-curve to determine his PIBP for the information. | |
| c. $285 | |
| d. Need Eric's u-curve and the probability he assigns to the "unfair" coin landing Heads (or Tails) to determine his PIBP for the information. |
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An Introduction to the Mathematics of Financial Derivatives
Authors: Ali Hirsa, Salih N. Neftci
3rd edition
012384682X, 978-0123846822
