Previously, the emphasis was on obtaining information from clients. In this chapter, the emphasis was on preparing witnesses for trial. To properly prepare witnesses for trial, the paralegal needs to….
Establish the closed-form formulas for c0 and p0.
Derivation of the closed-form formulas for European options Let DT = max(0, ST – K) be the payoff of a European call with strike K and maturity T. The following questions provide a step-by-step derivation of the closed-form formulas for c0 and p0 in the lognormal model.
(a) Show that where and otherwise.
(b) Show that ST has the same distribution as
(c) Show that Y > K if and only if
(d) Using the change of variable , show that .
(e) Establish the closed-form formulas for c0 and p0.