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Suppose the stock pays continous dividends with the annual dividend yeild equal to (delta). Portfolio A consists of a long position in 3 shares of
Suppose the stock pays continous dividends with the annual dividend yeild equal to (delta). Portfolio A consists of a long position in 3 shares of the stock and a short position in a foward contract to sell one share of the stock at the fair foward price which does not permit arbitrage. Verify that e^(-rT)E(Payoff of A) = 3S.
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