[Pricing the Variance Contract]. Suppose we have the assumptions of the Black- Scholes Model. Find the pricing formula for the European Style derivative whose payoff is given by function [max(ST – K), 0]² , where ST is the stock price in the BS model on date T.

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.