(10 points) Consider a European-style option written on a stock which pays the amount S...
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(10 points) Consider a European-style option written on a stock which pays the amount S for some ne N to the holder of the option at time T > 0, where Sy is the stock price at that time. Letr> 0 denote the risk-free interest rate (p.a. and continuously compounded). Compute today's (t = 0) arbitrage-free price of this financial derivative in the Black-Scholes- Merton model by using the risk-neutral valuation approach. (10 points) Consider a European-style option written on a stock which pays the amount S for some ne N to the holder of the option at time T > 0, where Sy is the stock price at that time. Letr> 0 denote the risk-free interest rate (p.a. and continuously compounded). Compute today's (t = 0) arbitrage-free price of this financial derivative in the Black-Scholes- Merton model by using the risk-neutral valuation approach
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