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The time-t price of a nondividend paying stock is St. A derivative security pays the maximum of 100 and St at time t. Given: S0=92.

The time-t price of a nondividend paying stock is St. A derivative security pays the maximum of 100 and St at time t. Given:

  • S0=92.

  • The stock follows the Black-Scholes framework.

  • The continuously-compounded risk-free interest rate is 4%.

  • The volatility of the stock is 0.25.

    Calculate the price of this claim if t = 2.

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