Your company has just written one million units of a one-year European asset-or-nothing put option on an equity index fund.

The equity index fund is currently trading at 1000. It pays dividends continuously at a rate proportional to its price; the dividend yield is 2%. It has a volatility of 20%.

The option’s payoff will be made only if the equity index fund is down by more than 40% at the end of one year.

The continuously compounded risk-free interest rate is 2.5%.

Using the Black-Scholes model, determine the price of the asset-or-nothing put options.

(A) 0.2 Million

(B) 0.9 Million

(C) 2.7 Million

(D) 3.6 Million

(E) 4.2 Million