Let KT = S0erT. Compute Pr(ST KT) for a variety of T s from 0.25 to 25

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Let KT = S0erT. Compute Pr(ST KT) for a variety of T s from 0.25 to 25 years. How do the probabilities behave? How do you reconcile your answer with the fact that both call and put prices increase with time?

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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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Question Posted: Dec 18, 2015 05:13 AM

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Let KT = S0erT. Compute Pr(ST KT) for a variety of T s from 0.25 to 25

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See Figure Two on the next page Option prices depend on the conditional risk neutral expectation ...View the full answer

Derivatives Markets

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