Project Part III (Static Replication) Suppose on 1-Dec-2020, we need to evaluate an exotic European derivative expiring on 15-Jan-2021 which pays: 1 Payoff function: S +1.5 x log(ST) + 10.0 2 "Model-free" integrated variance: OMFT = E Project (2021-22 Term 1) T 3 [f" o dt] 0 Determine the price of these 2 derivative contracts if we use: 1 Black-Scholes model (what o should we use?) 2 Bachelier model (what o should we use?) 3 Static-replication of European payoff (using the SABR model calibrated in the previous question) 3/6 QF620 Stochastic Modelling in Finance