{"id":52027,"date":"2021-09-20T05:44:22","date_gmt":"2021-09-20T05:44:22","guid":{"rendered":"https:\/\/papersspot.com\/blog\/2021\/09\/20\/derivatives\/"},"modified":"2021-09-20T05:44:22","modified_gmt":"2021-09-20T05:44:22","slug":"derivatives","status":"publish","type":"post","link":"https:\/\/papersspot.com\/blog\/2021\/09\/20\/derivatives\/","title":{"rendered":"Derivatives"},"content":{"rendered":"<p>This <br \/>contract <br \/>will <br \/>p <br \/>ay <br \/>o <br \/>ff <br \/>s <br \/>tock <br \/>price <br \/>at <br \/>e <br \/>xpiry <br \/>squared, <br \/>S <br \/>T <br \/>2 <br \/>, <br \/>g <br \/>iven <br \/>s <br \/>tock <br \/>p <br \/>rice <br \/>is <br \/>less <br \/>t <br \/>han <br \/>t <br \/>he <br \/>strike <br \/>price, <br \/>K <br \/>. <br \/>That <br \/>is <br \/>d <br \/>efined <br \/>b <br \/>y <br \/>the <br \/>f <br \/>ollowing <br \/>function: <br \/>Given <br \/>that <br \/>t <br \/>he <br \/>underlying <br \/>s <br \/>tock <br \/>is <br \/>a <br \/>ssumed <br \/>t <br \/>o <br \/>f <br \/>ollow <br \/>Geometric <br \/>Brownian <br \/>M <br \/>otion; <br \/>(A) Use <br \/>R <br \/>isk-Neutral <br \/>Valuation <br \/>t <br \/>o <br \/>derive <br \/>the <br \/>f <br \/>air <br \/>price <br \/>of <br \/>t <br \/>he <br \/>s <br \/>ecurity <br \/>at <br \/>time <br \/>t <br \/>in <br \/>terms <br \/>of <br \/>the <br \/>stock <br \/>price, <br \/>S, <br \/>a <br \/>t <br \/>t <br \/>ime <br \/>t <br \/>. <br \/>T <br \/>his <br \/>w <br \/>ill <br \/>b <br \/>e <br \/>r <br \/>eferred <br \/>t <br \/>o <br \/>as <br \/>G <br \/>. <br \/>( <br \/>2 <br \/>M <br \/>arks) <br \/>(H <br \/>INT: <br \/>Y <br \/>ou <br \/>will <br \/>first <br \/>need <br \/>to <br \/>d <br \/>erive <br \/>t <br \/>he <br \/>s <br \/>tochastic <br \/>process <br \/>t <br \/>hat <br \/>is <br \/>f <br \/>ollowed <br \/>b <br \/>y <br \/>Y <br \/>t <br \/>= <br \/>S <br \/>t2 <br \/>, <br \/>Your <br \/>d <br \/>erivation <br \/>in <br \/>(a) <br \/>s <\/p>\n","protected":false},"excerpt":{"rendered":"<p>This contract will p ay o ff s tock price at e xpiry squared, S T 2 , g iven s tock p rice is less t han t he strike price, K . That is d efined b y the f ollowing function: Given that t he underlying s tock is a ssumed t [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[14],"class_list":["post-52027","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-finance"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/52027","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=52027"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/52027\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=52027"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=52027"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=52027"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}