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PROBLEM 6. 15 points] The price of a stock S is lognormally distributed a Log N(, 2). Suppose the payoff function of an option is

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PROBLEM 6. 15 points] The price of a stock S is lognormally distributed a Log N(, 2). Suppose the payoff function of an option is u(S)-max is, this option pays S2 if the stock price S is bigger than vK, otherwise it pays K. Calculate the expected value of the payoff, that is E[ max (S2, K)]. (s?, K, that

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