7. For estimating the value of an option on a traded stock, the expected return on the...

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7. For estimating the value of an option on a traded stock, the expected return on the stock is irrelevant, as proven in option-pricing theory. For the valuation of an option on an asset that is not traded, such as in the numerical example introduced in Exhibit 35.11, the expected cash flow returns are required. Discuss how that is still consistent with option-pricing theory.

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