Consider a contract that pays of (a) Compute the price of this contract in a geometric Brownian…

Consider a contract that pays of  

Don't use plagiarized sources. Get Your Custom Essay on
Consider a contract that pays of (a) Compute the price of this contract in a geometric Brownian…
Just from $13/Page
Order Essay

(a) Compute the price of this contract in a geometric
Brownian motion model from the stochastic representation  

(b) Compute the price of this contract in the same model
by solving the partial differential equation

 

with the terminal condition  

(c) Determine the hedge of the contract: 

 

(d) Use Ito’s formula to show