Consider Pr (S t
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Consider Pr(St <K), equation (18.23), and E(St |St < K), equation (18.28). Verify that it is possible to pick parameters such that changes in t can have ambiguous effects on Pr(St <K) (experiment with very short and long times to maturity, and set α >0.5σ2). Is the effect of t on E(St |St <K) ambiguous?
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An example is with K 80 When t is less than approximately six years P S t 80 i...View the full answer
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