Question: Please only answer (c) and (d) (c) Using the Feynman-Kac theorem, show how the differential equation of part (b) can be solved by setting up

Please only answer (c) and (d) (c) Using the Feynman-Kac theorem,

show how the differential equation of part (b) can be solved by

Please only answer (c) and (d)

(d) Derive the BSM formula by computing the expectation of in the risk neutral space (the Q space) of the value of a call option. [This will require you to compute an integral ).

Please only answer (c) and (d)

4. These questions relate to the Black-Scholes-Merton (BSM) model. You can consult any book available to answer this question]. (a) Describe in great detail the assumptions used in the BSM model. Specify the role of each in pricing a derivative. (b) Using the assumptions in (a), derive the BSM differential equation. (c) Using the Feynman-Kac theorem, show how the differential equation of part (b) can be solved by setting up an SDE. (d) Derive the BSM formula by computing the expectation of in the risk neutral space (the Q space) of the value of a call option. This will require you to compute an integral. You can consult the web to get some idea of how this is done. 4. These questions relate to the Black-Scholes-Merton (BSM) model. You can consult any book available to answer this question]. (a) Describe in great detail the assumptions used in the BSM model. Specify the role of each in pricing a derivative. (b) Using the assumptions in (a), derive the BSM differential equation. (c) Using the Feynman-Kac theorem, show how the differential equation of part (b) can be solved by setting up an SDE. (d) Derive the BSM formula by computing the expectation of in the risk neutral space (the Q space) of the value of a call option. This will require you to compute an integral. You can consult the web to get some idea of how this is done

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