With the fixed continuously compounded rate r, the Black-Scholes stock price S, at time t follows...

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With the fixed continuously compounded rate r, the Black-Scholes stock price S, at time t follows a lognormal distribution given by In S~ N(In So + (r-²)t, o²t), where o is the constant volatility. Suppose that So = 100, r = .02,σ = .3 find the price of the digital option with the strike K = 110, maturity T = 1, and the face value F = 1000, this means the option payoff at maturity is either F whenever STK or 0 otherwise. Find the option price. With the fixed continuously compounded rate r, the Black-Scholes stock price S, at time t follows a lognormal distribution given by In S~ N(In So + (r-²)t, o²t), where o is the constant volatility. Suppose that So = 100, r = .02,σ = .3 find the price of the digital option with the strike K = 110, maturity T = 1, and the face value F = 1000, this means the option payoff at maturity is either F whenever STK or 0 otherwise. Find the option price.

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To find the price of the digital option we can use the BlackScholes formula for a European call option The formula is as follows C F er T Nd2 Where C is the option price F is the face value r is the c... View the full answer