Question: Verify that S t e T t N d1 satisfies the Black Scholes equation
Verify that S(t)e−δ(T−t)N(d1) satisfies the Black-Scholes equation.
Answer to relevant QuestionsVerify that e−r(T−t)N(d2) satisfies the Black-Scholes equation. Repeat the previous problem assuming that δ1= 0.05 and δ2 = 0.12. Verify that both procedures give a price of approximately $15.850. Use a change of numeraire and measure to verify that the value of a claim paying ST 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? Verify that equation (23.7) satisfies the appropriate boundary conditions for Pr(ST ≤ H and ST >K).
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