(Wt , t 0) is standard BM.

2. A share has a current price of 30 and its value evolves as a log-normal process with the expected return = 20% and the volatility = 40%. The risk-free rate of interest is 8% per annum compounded continuously.

a) Find the Black-Scholes price of a 9-month binary put option with strike price K = 30. The option pays 1, if ST < K and nothing otherwise, where T=9 months.

b) Find the Black-Scholes price of a 6-month binary call with strike price K = 40. The option pays 1, if ST K and nothing otherwise, where T=6 months.

c) Find the Black-Scholes price of a 9-month European call option with strike price K = 30.