Consider a european-style option with payoff at expiry


Consider a European-style option with payoff at expiry given by A(s(T)) = S(T). Explain why time zero value of this option must be S0. By using (6.11) show that asking for the discount expected payoff (12.1) to match this value leads immediately to the risk neutrality condition meu = r

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Financial Management: Consider a european-style option with payoff at expiry
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