Question: For the stock price process dS = Sdt + o Sdz where dz is the Weiner 6. process, u is the expected rate of return

For the stock price process dS = Sdt + o Sdz

For the stock price process dS = Sdt + o Sdz where dz is the Weiner 6. process, u is the expected rate of return on the stock and o is the volatility of the stock price; suppose f is the price of a derivative that is contingent on S; the Black-Scholes- Merton differential equation governs all the derivatives that can be defined with S. (5) a) Show the Black-Scholes-Merton differential equation for f b) What is the boundary condition of this equation for a European put option when t=T For the stock price process dS = Sdt + o Sdz where dz is the Weiner 6. process, u is the expected rate of return on the stock and o is the volatility of the stock price; suppose f is the price of a derivative that is contingent on S; the Black-Scholes- Merton differential equation governs all the derivatives that can be defined with S. (5) a) Show the Black-Scholes-Merton differential equation for f b) What is the boundary condition of this equation for a European put option when t=T

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