ma503b-10hm1

# ma503b-10hm1 - p 3 Give an argument to justify the idea of...

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MATH503b (SPRING 2010) HOMEWORK #1 Due Friday, January 29 1) Exercise 8.1, 8.2, 8.3 and Exercise 9.2, 9.5, 9.10, 9.11 (of Bj¨ork’s book). 2) Let p ( t,s ) = C ( t,s,K,r,σ,T ) be the price function of the European call option. Namely p ( t,s ) = sN ( d 1 ( t,s )) - e - r ( T - t ) KN ( d 2 ( t,s )) , where d 1 ( t,s ) = 1 T - t n ln s K · + r + 1 2 σ 2 · ( T - t ) o ; d 2 ( t,s ) = d 1 ( t,s ) - σ T - t. Compute Gamma, rho, and Vega of
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Unformatted text preview: p . 3) Give an argument to justify the idea of the “implied volatility”. That is, given the market option price C ma , with the same parameters ( t,s,K,r,T ), there exists a unique solution (for σ ) of the following equation: C ( t,s,K,r,σ,T ) = C ma . 1...
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## This note was uploaded on 10/08/2010 for the course MA 503 taught by Professor Majin during the Fall '09 term at USC.

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