Assuming that the stock price satisfies equation (20.20), verify that Ke−r(T−t) + S(t)e−δ(T−t) satisfies the Black-Scholes equation, where K is a constant. What is the boundary condition for which this is a solution?
Answer to relevant QuestionsVerify that S(t)e−δ(T−t)N(d1) satisfies the Black-Scholes equation. Let c be consumption. Under what conditions on the parameters λ0 and λ1 could the following functions serve as utility functions for a risk-averse investor? (Remember that marginal utility must be positive and the function ...Use a change of numeraire and measure to verify that the value of a claim paying KT if ST A collect-on-delivery call (COD) costs zero initially, with the payoff at expiration being 0 if S A barrier COD option is like a COD except that payment for the option occurs whenever a barrier is struck. Price a barrier COD put for the same values as in the previous problem, with a barrier of $95 and a strike of $90. ...
Post your question