Question: Given the representation: Can you determine the g(-) if the M T (X T ) is the payoff of an plain vanilla European call option

Given the representation:

Mp(X,) = M,(X.)- g(t, X,)dW,

Can you determine the g(-) if the MT(XT) is the payoff of an plain vanilla European call option at expiration?

That is, if MT(XT) is given by:

MT(XT) = max [XT?? K, 0],

Where 0

Mp(X,) = M,(X.)- g(t, X,)dW,

Step by Step Solution

★★★★★

3.46 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

In theory the representation is possible The difficulty is that X t S t may not be a martingale u... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (1 attachment)

Word file Icon

41-B-F-F-M (32).docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!

Q:

Given the representation: can you determine the g (), if the MT (XT) is the payoff of a plain vanilla European call option at expiration? That is, if MT(XT) is given by: MT (XT) = max [XT K, 0]...

Q:

If you own a call option at expiration and the stock price equals the strike price, is you profit zero?

Q:

You purchase 10 call option contracts with a strike price of $75 and a premium of $4.05. If the stock price at expiration is $83.61, what is your dollar profit? What if the stock price is $69.56?

Q:

C. Valuing a Plain Vanilla European Call Option 1. From CRSP, download daily returns on your chosen stock for the last 500 days. Estimate u (annualized mean return) and o (annualized variance) for...

Q:

Partial Differential Equations The Black-Scholes-Merton (BSM or just BS) PDE for the value Ct, S) of a derivative security as a function of time t and underlying asset price level S(t) = S takes the...

Q:

Show the workings in each. 20. Compare the adjustment to medium run equilibrium after a fiscal contraction of a fixed and flexible exchange rate economy. What happens in the short run and during the...

Q:

.Got Abit stuck on this, A company is currently financed entirely by equity with 100,000 shares in issue and no debt. The current share price is $1. The company has total assets of $100,000 with...

Q:

_Help me answer this Macroeonomic problem. (C) If shovels rent for $5, and workers must be paid $25, draw several isocost lines. (D) If BBQ-Yee32l has received a state contract to ll 30 potholes,...

Q:

See attachments and answer A company is currently financed entirely by equity with 100,000 shares in issue and no debt. The current share price is $1. The company has total assets of $100,000 with...

Q:

Hello, Kindly tackle this. A company is currently financed entirely by equity with 100,060 shares in issuc and no debt. The current share price is $1. The company has total assets of $100,000 with...

Q:

a) Calculate the COGS and COGM for a product based on the following data: Overhead surcharge material 6% 32% Overhead surcharge manufacturing Overhead surchrage admin Direct material costs Direct...

Q:

A school board at a local community college is considering raising the student services fees. The board wants to obtain the opinion of the student body before proceeding. Design a sampling method to...

Q:

In SUA case, when issuing refund for goods returned, what three documents need to match before refunds to be issued?

Q:

Change of heat content when one mole of the compound is burnt in oxygen at constant pressure is called calorific value heat of reaction heat of combustion heat of formation Fundamental principle of...

Q:

For an exothermic reaction * only enthalpy change (AH)is negative enthalpy change is zero only internal energy change (AU) is negative both AH and AU are negative Melting of wax is accompanied with...

Q:

For equilibrium process in an isolated system * dS 0 dS = 0 dS = constant Third law of thermodynamics is concerned with * none of these energy transfer direction of energy transfer the value...

Q:

The absolute entropy for all crystalline substances at absolute zero temperature is zero is negative is more than zero can't be determined Entropy is measure of * none of these disorder of a system...

Q:

The point at which all three phases co-exist is known as * triple point none of these freezing point boiling point Second law of thermodynamics is concerned with * irreversible process only...

Q:

Which normal form do these tables adhere to? a. Unnormalized b. 1NF c. 2NF d. 3NF

Q:

Select ten standard, normal random numbers using Mathematica, Maple, or Matlab. Suppose interest rates follow the SDE: drt = 0.02rtdt + 0.06rtdWt Assume that the current spot rate is 6%. (a)...

Q:

We observe that current price of a zero-coupon bond with one year maturity is $0.97 (paying $1 at t = 1). We also observe the current implied forward rate is 2.5%. Under the forward measure, price a...

Q:

Price a zero-coupon bond with maturity one year under the Vasicek model drt = ( rt)dt + dWt (17.117) with r0 = 0.01, = 0.2, = 0.01, = 0.05.

Q:

In Ontario, past records revealed that 60 percent of all the high school graduates go to post-secondary education. From 20 graduates selected at random, what is the probability that exactly 15 will...

Q:

The Zip file: https://www150.statcan.gc.ca1/tbl/csv/32100008-eng.zip A. (1 point) Obtain the Trade Data of monthly export of grains from Statistics Canada's Open Government. See also...

Q:

12.2 One sample has n = 15 with SS = 1570, and a second sample has n = 15 with SS = 1650. a. Find the pooled variance for the two samples. b. Compute the estimated standard error for the sample mean...