Barrier options You have at your disposal a derivative contract which is deactivated when the...
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Accounting
Barrier options
You have at your disposal a derivative contract which is deactivated when the value of the underlying title exceeds the threshold B. Consider that the value of the underlying title follows the geometric motion brown. a) Do you think that a barrier call is cheaper or more expensive than a normal one? b) Invoice such a contract to the binomial tree. c) Write the Black-Scholes equation for this derivative and try to solve it.
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