Need help? We are here

(a)Suppose that it is now ???? = 0 and ???? > 0 is some later time. Carefully show that the
probability in a risk-neutral world satisfies the equation, ????(???????? > ????) = ????(????2). Here, ???????? is a
stock’s price at time ????, ????(????) is the cumulative distribution of a standard normal random
variable, and ????2 =
(ln(s0/k )+(????? ????^2/2
)???? )/ (????????? )

(b)
Consider a European call with expiration date ????, underlying stock price ????(????), volatility ????, risk-free rate ????, and strike price ????. If ????(????0, 0) is its price at time ???? = 0, then compute
lim????(????0,0). ??0

error: Content is protected !!