Calculate the price of the security at time t

Assignment Help Financial Management

Reference no: EM131237522

Assume that a non-dividend-paying stock has an expected return of μ and a volatility of σ. An innovative financial institution has just announced that it will trade a security that pays off a dollar amount equal to ln S_T at time T, where S_T denotes the value of the stock price at time T.

(a) Use risk-neutral valuation to calculate the price of the security at time t in terms of the stock price, S, at time t.

(b) Confirm that your price satisfies the differential equation.

1722_Fig 1.jpg

Reference no: EM131237522

Questions Cloud

What does the range of a projectile depend : How do the motions of horizontal projections with the same initial speed compare on the Earth and on the Moon? On what does the range of a projectile depend? Can a baseball pitcher throw a fastball in a straight, horizontal line? Why or why not?

Diploma mills on legitimate educational institutions : 1) What is the impact of diploma mills on legitimate educational institutions? How does one check the credentials of learning institutions to verify legitimacy? What should one look for when selecting an institution of higher learning?

What is the direction of the acceleration vector of a person : For projectile motion, what quantities are constant?

In what respect is given statement misleading : A portfolio manager announces that the average of the returns realized in each year of the last 10 years is 20% per annum. In what respect is this statement misleading?

Calculate the price of the security at time t : Use risk-neutral valuation to calculate the price of the security at time t in terms of the stock price, S, at time t.- Confirm that your price satisfies the differential equation.

What does the term centripetal mean : Can a car be moving at a constant speed of 60 km/h and still be accelerating? Explain. What does the term centripetal mean? Are we accelerating as a consequence of the Earth's spinning on its axis? Explain.

Which was first western country to grant womens suffrage : Which of the following was the first western country to grant women's suffrage in 1914? Under Muhammad Ali and his grandson Ismail, the economic underpinning of modernization in Egypt was.

What changes when there is acceleration : What changes when there is acceleration? Give an example. Might the steering wheel of a car be classified as an "accelerator"? Explain. Does a negative acceleration always mean that an object is slowing down? Explain.

How do the jogger''s average speed and magnitude compare : If the jogger's return trip follows the same path, how do average speed and magnitude of the average velocity compare for the total trip?

User Account

All Pages