Let f(S,t) = S(t)3 be an asset that is worth the cube of the price of an
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Question:
Let f(S,t) = S(t)3 be an asset that is worth the cube of the price of an underlying stock with price S(t). As always, show all your work and logically justify all your answers.
(a) Determine whether this asset satisfies the Black-Scholes-Merton partial differential equation.
(b) Determine the formula for the Ito process that generates this asset.
(c) Find a formula for E(f(S,T)).
(d) Find a formula for Var(F(S, T)).
Related Book For
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ISBN: 978-0538470841
4th edition
Authors: Steve Albrecht, Chad Albrecht, Conan Albrecht, Mark zimbelma
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