A European option exists on the stock of the company with the following non-standard payoff. Share price

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A "European option" exists on the stock of the company with the following non-standard payoff.

Share price of the Company at Maturity = ST Option Payoff

ST> $10.00 ST> $10.00

$5.00 ST $10.00 $15.00

$0.00 ST< $5.00 $1.00

The time to maturity for the "European option" is 3 years.

Required

In your own words describe an approach and any proposed model or models to price this "option"? Also note if you could still assume "risk neutrality" and if so why? (Word Limit: 150 words).

Posted Date: May 19, 2024 03:17 AM

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A European option exists on the stock of the company with the following non-standard payoff. Share price

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