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For a non-dividend paying stock with price S(t) at time t, you are given the followings: • The stock, S(t) follows Geometric Brownian motion. • The current stock price is 80. • The continuously compounded expected annual rate of return, a =0.12. • The volatility, o = 0.3. Suppose there is a geometric average strike Asian put option has a payoff based on the average prices of the stock at the ends of one, two, and three years from now. Determine the probability that this option will payoff.

For a non-dividend paying stock with price S(t) at time t, you are given the followings: • The stock, S(t) follows Geometric Brownian motion. • The current stock price is 80. • The continuously compounded expected annual rate of return, a =0.12. • The volatility, o = 0.3. Suppose there is a geometric average strike Asian put option has a payoff based on the average prices of the stock at the ends of one, two, and three years from now. Determine the probability that this option will payoff.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Q3. For a non-dividend paying stock with price S(t) at time t, you are given the followings: (a) • The stock, S(t) follows Geometric Brownian motion. • The current stock price is 80. • The continuously compounded expected annual rate of return, a = 0.12. • The volatility, o = 0.3. Suppose there is a geometric average strike Asian put option has a payoff based on the average prices of the stock at the ends of one, two, and three years from now. Determine the probability that this option will payoff.
Transcribed Image Text:Q3. For a non-dividend paying stock with price S(t) at time t, you are given the followings: (a) • The stock, S(t) follows Geometric Brownian motion. • The current stock price is 80. • The continuously compounded expected annual rate of return, a = 0.12. • The volatility, o = 0.3. Suppose there is a geometric average strike Asian put option has a payoff based on the average prices of the stock at the ends of one, two, and three years from now. Determine the probability that this option will payoff.
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