The formula for an infinitely lived call is given in equation (12 18) Suppose that S follows equation (20 20), with replaced by r, and that E(dV ) rV dt Use Itos Lemma to verify that the value of the call, V (S), satisfies this equation to s Vss (r 8)SVs rV 0...

Note that if V S satisfies the given equation then Since where a is constant showing ...

The formula for an infinitely lived call is given in equation (12.18). Suppose that S follows equation

Question:

The formula for an infinitely lived call is given in equation (12.18). Suppose that S follows equation (20.20), with Î± replaced by r, and that Eˆ—(dV ) = rV dt. Use ItË†o€™s Lemma to verify that the value of the call, V (S), satisfies this equation: