Question: Verify that equation 21 12 satisfies the Black Scholes equation What is
Verify that equation (21.12) satisfies the Black-Scholes equation. What is the boundary condition for which this is a solution?
Answer to relevant QuestionsSuppose that a derivative claim makes continuous payments at the rate _. Show that the Black-Scholes equation becomes Verify that ASaeγ t satisfies the Black-Scholes PDE for Consider again the bet in Example 21.3. Suppose the bet is S − $106.184 if the price is above $106.184, and $106.184 − S if the price is below $106.184. What is the value of this bet to each party? Why? Use a change of numeraire and measure to verify that the value of a claim paying KT if ST Suppose an option knocks in at H1> S, and knocks out at H2 >H1. Suppose that K H1, it is not possible to hit H2 without hitting H1): What is the value of this option?
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