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For the following three problems, assume dSt = constants. Letr be the constant interest rate. aSidt + SidW, where a ER,O > 0 are Problem
For the following three problems, assume dSt = constants. Letr be the constant interest rate. aSidt + SidW, where a ER,O > 0 are Problem 6. Suppose s = 1,0 = 2, S0 = 1. The payoff of a European contract at the terminal time T = 1 is given by 0 if ST e. (a) (10 points) Express Vi as a linear combination of payoffs of some options. (b) (10 points) Find the price of the contract at time 0. You may leave the CDF N() of standard normal in your answer. e3 - e For the following three problems, assume dSt = constants. Letr be the constant interest rate. aSidt + SidW, where a ER,O > 0 are Problem 6. Suppose s = 1,0 = 2, S0 = 1. The payoff of a European contract at the terminal time T = 1 is given by 0 if ST e. (a) (10 points) Express Vi as a linear combination of payoffs of some options. (b) (10 points) Find the price of the contract at time 0. You may leave the CDF N() of standard normal in your answer. e3 - e
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