Question: Please answer parts A through E in full giving full detail in the answer PROBLEM 8. [10 points] A cash-or-nothing call option is a European

Please answer parts A through E in full giving full detail

Please answer parts A through E in full giving full detail in the answer

PROBLEM 8. [10 points] A cash-or-nothing call option is a European type call option that pays cash of the amount B if S > Eat expiration, otherwise it pays nothing. (a) What is the payoff function of the cash-or-nothing call option? (b) Explain in one paragraph why the Black-Scholes analysis can be applied to the cash- or-nothing call option. (c) What is partial differential equation that the value function of a cash-or-nothing call, V(St) satisfies? (d) What are the boundary conditions and final condition? (e) Derive a formula for V(S,t). PROBLEM 8. [10 points] A cash-or-nothing call option is a European type call option that pays cash of the amount B if S > Eat expiration, otherwise it pays nothing. (a) What is the payoff function of the cash-or-nothing call option? (b) Explain in one paragraph why the Black-Scholes analysis can be applied to the cash- or-nothing call option. (c) What is partial differential equation that the value function of a cash-or-nothing call, V(St) satisfies? (d) What are the boundary conditions and final condition? (e) Derive a formula for V(S,t)

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