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Suppose the S&P index is 1200. The continuous annual dividend yield on the index is 1.5%. The volatility is 30% and the continuously compounded riskless
Suppose the S&P index is 1200. The continuous annual dividend yield on the index is 1.5%. The volatility is 30% and the continuously compounded riskless rate is 6.6% per year.
What is the price of a bond that pays S2 + Max(S2 S0,0)
Hint: price the option using the Black Scholes model with continuous dividends
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