Question: This question is designed to make sure you know how to derive the Black-Scholes partial differential equation (pde). a) Write down the key assumptions of

This question is designed to make sure you know how to

This question is designed to make sure you know how to derive the Black-Scholes partial differential equation (pde). a) Write down the key assumptions of the Black-Scholes model. b) Why is Ito's lemma needed? c) Derive the Black-Scholes pde, d) What is the role of hedging? Why is this hedge portfolio also called a replicating portfolio? e) Why does the Black-Scholes pde not have a stochastic component

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