hw10-2 - 3 Exotic Options 225 and ฮ being ฮ 1 ฮ 2 ฮ n b For...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 3 Exotic Options 225 and ฮท being ฮท 1 ฮท 2 . . . ฮท n . b) For the European option with a payoff min( S , S 1 , ยทยทยท , S n ), its price is V min ( S 1 , S 2 , ยทยทยท , S n , t ) = S * N n ( B 10 , B 20 , ยทยทยท , B n ; ฯ 120 , ฯ 130 , ยทยทยท , ฯ ( n- 1) n ) + S * 1 N n ( B 21 , B 31 , ยทยทยท , B 01 ; ฯ 231 , ฯ 241 , ยทยทยท , ฯ n 01 ) . . . + S * n N n ( B n , B 1 n , ยทยทยท , B ( n- 1) n ; ฯ 01 n , ฯ 02 n , ยทยทยท , ฯ ( n- 2)( n- 1) n ) , where B ij =- A ij . 30. Suppose that c max ( S 1 , S 2 , t ), c min ( S 1 , S 2 , t ), c ( S 1 , t ) and c ( S 2 , t ) are the prices of four call options with payoff functions max(max( S 1 , S 2 )- E, 0) , max(min( S 1 , S 2 )- E, 0) , max( S 1- E, 0) , and max( S 2- E, 0) , respectively. Show c max ( S 1 , S 2 , t ) + c min ( S 1 , S 2 , t ) = c ( S 1 , t ) + c ( S 2 , t ) . (Hint: Show that the total payoff of the two options on the left-hand side is equal to the total payoff of the two options on the right-hand side.)is equal to the total payoff of the two options on the right-hand side....
View Full Document

{[ snackBarMessage ]}

Page1 / 2

hw10-2 - 3 Exotic Options 225 and ฮ being ฮ 1 ฮ 2 ฮ n b For...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online