7. The normal model Show that if the risk-neutral distribution of ST is given by ST...

 

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7. The normal model Show that if the risk-neutral distribution of ST is given by ST | S ~N (F, (T-t)), where F = F(t, T)istheforwardprice, thenthepriceofa K-strike straddle is approxim- ated by Z(t, T). F-K -t + where k = T-t 7. The normal model Show that if the risk-neutral distribution of ST is given by ST | S ~N (F, (T-t)), where F = F(t, T)istheforwardprice, thenthepriceofa K-strike straddle is approxim- ated by Z(t, T). F-K -t + where k = T-t