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Suppose that current stock price is $20 and pays no dividends. Its annualized volatility is 15% and stock return 2.5% (i.e. we assume that the
Suppose that current stock price is $20 and pays no dividends. Its annualized volatility is 15% and stock return 2.5% (i.e. we assume that the stock price follows.
1) Write the probability density function for the stock in 1 month, 6 months, 1 year, and 2 years.
2) Write the same probability density functions in risk-neutral world assuming constant interest rate 1.5% per year and stock pays no dividends.
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