A digital call is an option that pays 0 below the strike price and one 1...
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A digital call is an option that pays 0 below the strike price and one 1 above the strike price. A digital put is an option that pays 0 above the strike price and one 1 below the strike price. Derive the expression for the price of an at-the-money digital call given that (i) the price of an at-the-money digital put is ert N(-d2), (ii) N(x)+N(-x) = 1, and (iii) the present value of a dollar is exp(-rt). Provide a brief explanation for key steps/assumptions in your derivation. A digital call is an option that pays 0 below the strike price and one 1 above the strike price. A digital put is an option that pays 0 above the strike price and one 1 below the strike price. Derive the expression for the price of an at-the-money digital call given that (i) the price of an at-the-money digital put is ert N(-d2), (ii) N(x)+N(-x) = 1, and (iii) the present value of a dollar is exp(-rt). Provide a brief explanation for key steps/assumptions in your derivation.
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Answer rating: 100% (QA)
To derive the expression for the price of an atthemoney digital call we can use the putcall parity relationship and the given information PutCall Pari... View the full answer
Related Book For
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
Posted Date:
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