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Let 0 < K < K. Assume that the underlying stock price S, follows the Black-Scholes model, with drift , volatility and So initial
Let 0 < K < K. Assume that the underlying stock price S, follows the Black-Scholes model, with drift , volatility and So initial price. Let the risk free rate be equal to r. Consider an option having payoff at maturity T Cr=min(max(Sr. K), K). i) Express the option as a portfolio of European Call, Put and stock. ii) Compute the initial price of this option.
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It seems like there may be a typo in your question as you mentioned 0 K K which doesnt make sense Ill assume you meant that 0 K S0 where S0 is the ini...Get Instant Access with AI-Powered Solutions
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An Introduction to the Mathematics of Financial Derivatives
Authors: Ali Hirsa, Salih N. Neftci
3rd edition
012384682X, 978-0123846822
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