MATH 472: Homework 4
Due 10:00 on Tuesday, March 20.
Unless stated otherwise, all exercises and computer problems are from our textbook
(second edition) by Timothy Sauer.
All results have to be
. Only com-
plete and clear solutions will receive full credit.
Regarding the computer problems, print the .m files as well as the results that you obtain. If you need
to provide any additional comments on the printing, they can be handwritten.
A European call option is a financial contract the gives its holder the right to buy one share of
stock at strike price
. The famous Black Scholes formula gives the price of such a contract
under the Black Scholes model. In this model, the price process for the stock is assumed to solve a specific
stochastic differential equations starting from
. Using this differential equation one can show that