Derive an analytic formula for double digital option

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Reference no: EM133553633

REQUIREMENT

A double digital option is a particular variety of option. At maturity, the payoff is 1 if the spot price of the underlying asset St , is between two numbers, the lower (K1) and upper strikes (K2) of the option; otherwise, it is 0. Price a double digital option with K1 = 90 and K2 = 110.
To make future pricing easier, please derive an analytic formula for double digital option price DO (S0, r,Sigma,K1,K2, T). (Hint, in BS setup what's the price for digital option, and how to decompose a double digital option)

Reference no: EM133553633

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