Solution-Write down the price of given option

Write down the price of given option

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Reference no: EM131782529

Question: Consider the European digital option that pays a constant H if the stock price is above strike price X at maturity and zero otherwise.

Assuming stock prices follows the following SDE under physical measure

dS/S = μdt + σdB_t,

Assuming the risk-free rate is constant r. Please write down the price of this option and explain how it is related to the price of the standard Black-Scholes European call option.

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In this assignment i was required to solve the asked question and relate with the asked requirements. The whole sum was related to calculation of value of stock option with the help of formulae known as black Scholes model.

Reference no: EM131782529

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Write down the price of given option

Reference no: EM131782529

Reference no: EM131782529

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