Under the same assumptions as the previous problem, show that the value of a claim paying S2(T ) if S1(T) > KS2(T ) is

where σ2, δ1, and δ2 are defined as in the previous problem.
In the next set of problems you will use Monte Carlo valuation. Assume that S0 = $41,
K = $40, P0 = 0.9802, σ = 0.30, T = 0.25, and δ = 0.

Transcribed Image Text:

S,(t)e-(T-1)N (In(S|(t)/ K S2(t)) + (82 – 81 – 0.502)(T oT -t –1)