Question: 2. (20 points) (Digital put) Under the Black-Scholes model, consider an option C = g(ST) with strike K, so that g(s)=1 fors SK and g(s)=0

2. (20 points) (Digital put) Under the Black-Scholes model, consider an

2. (20 points) (Digital put) Under the Black-Scholes model, consider an option C = g(ST) with strike K, so that g(s)=1 fors SK and g(s)=0 when s > K. This is called a digital put option. Derive a formula price of the option at any time t s T using the risk-neutral pricing formula. Also obtain a formula for the delta of the option. 2. (20 points) (Digital put) Under the Black-Scholes model, consider an option C = g(ST) with strike K, so that g(s)=1 fors SK and g(s)=0 when s > K. This is called a digital put option. Derive a formula price of the option at any time t s T using the risk-neutral pricing formula. Also obtain a formula for the delta of the option

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