Question: assume ds. = aSidt + OSW, where a E RO > 0 are constants. Letr be the constant interest rate. Problem 4 (10 points). Recall

assume ds. = aSidt + OSW, where a E RO > 0 are

assume ds. = aSidt + OSW, where a E RO > 0 are constants. Letr be the constant interest rate. Problem 4 (10 points). Recall that the payoff of a European put option with strike K at terminal time T is (K - Sr). It is easy to observe that Sy - K = (Sr-K)+- (K - Sr). Based on this observation and the Black-Schoes formula, deduce a formula for the price of this put option at time t = 0. assume ds. = aSidt + OSW, where a E RO > 0 are constants. Letr be the constant interest rate. Problem 4 (10 points). Recall that the payoff of a European put option with strike K at terminal time T is (K - Sr). It is easy to observe that Sy - K = (Sr-K)+- (K - Sr). Based on this observation and the Black-Schoes formula, deduce a formula for the price of this put option at time t = 0

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