Question: Problem 5 (Combining Pathwise & Likelihood Ratio Methods): (15 pts) Consider the problem of estimating A of a digital put option. We already know that

Problem 5 (Combining Pathwise & Likelihood Ratio Methods): (15 pts) Consider the problem of estimating A of a digital put option. We already know that the pathwise approach cannot be utilized for this option. However, we can write the digital payoff as 1{ s 0 and small. Note that fs(s) is piecewise linear approximation to the payoff 1is

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