S ( t ) denotes the price of a stock at time t . A European barrier call with ba
ID: 3027323 • Letter: S
Question
S(t) denotes the price of a stock at time t. A European barrier call with barrier B = 50, expiration T = 31, and strike K = 33 costs 12. The investor is interested in a product that, unlike this barrier call, offers some protection for the case that the stock goes above the barrier 50. The investor wants to buy an investment product called Secured Barrier Call whose payoff structure is
An American digital call with strike 33 and expiration 31 costs 0.73, and the American digital call with strike 50 and expiration 31 costs 0.70.
I need to compute the price of the Secured Barrier Call. After computation, I got $22.91. But I am not confident about what I got. Could you please confirm or help me if it's wrong? Thank you.
S(31) 33, if S(31) 33 and S(t) 50 vt 31 if S(t) 50 for some t S 31 Payoff 50 otherwise.Explanation / Answer
Yes ur answer of $22.91 is correct as to after the entire calculation i also got $22.91 as the secured barrier call
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