Question: Suppose that S1 and S2 follow geometric Brownian motion and
Suppose that S1 and S2 follow geometric Brownian motion and pay continuous proportional dividends at the rates δ1 and δ2. Use the martingale argument to show that the value of a claim paying S1(T ) if S1(T) > KS2(T ) is
where σ2 = σ2 1 + σ2 2 − 2ρ1, 2σ1σ2 and δ1 and δ2 are the dividend yields on the two stocks.
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