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Valuation of a Derivative Consider a derivative on a stock with the time to expiration T and the following payoff: 0 if ST < K1
Valuation of a Derivative Consider a derivative on a stock with the time to expiration T and the following payoff:
0 if ST < K1
K1 if K1 ST < K2
0 if K2 ST
where K2 > K1. What is the present value of the derivative? Provide an analytic expression of the price using N (), the cumulative probability distribution function of a standard normal random variable.
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