Consider the option price as a function of maturity T (keeping all other variables fixed), that...

 

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Consider the option price as a function of maturity T (keeping all other variables fixed), that is, P= P(T). Find the limit of P(T), as T0 in the cases i) S > K (the put option is out the money) and ii) S < K (the put option is in the money). Recall the formula for the price P of a European put option with strike K and maturity T P = S(1-(₁))+ Ke-(1-(o)), where S= S(0), r is the risk-free interest rate compounded continuously, log(S/K) + (r+o2/2)T OVT log(S/K)+(r-o²/2)T OVT I1 and To= Consider the option price as a function of maturity T (keeping all other variables fixed), that is, P= P(T). Find the limit of P(T), as T0 in the cases i) S > K (the put option is out the money) and ii) S < K (the put option is in the money). Recall the formula for the price P of a European put option with strike K and maturity T P = S(1-(₁))+ Ke-(1-(o)), where S= S(0), r is the risk-free interest rate compounded continuously, log(S/K) + (r+o2/2)T OVT log(S/K)+(r-o²/2)T OVT I1 and To=