Given the price of a call equals to 5 with Strike 100, please find the upper bound (sup) of the digital option with strike 105.

I am not sure about the solution, but I write the condition like this,

$S\mathcal{N}(d_1)-Ke^{-rT}\mathcal{N}(d_2) = 5$

what's the $\sup{N(d_1+\frac{\ln(\frac{100}{105})}{\sigma\sqrt{T}})}$?

  • 1
    $\begingroup$ $\mathcal{N}(\cdot)$ is a cumulative distribution function. Hence, the image of $\mathcal{N}$ is clearly $[0,1]$. $\endgroup$ – SRKX May 27 '12 at 9:54
  • $\begingroup$ Is this a homework assignment? I notice you posted some questions on Math.SE and were called-out there too for posting school work with no effort. $\endgroup$ – chrisaycock May 27 '12 at 13:49
  • $\begingroup$ Hi chrisaycock, it's not a homework. To SRKK, it's obvious $\mathcal{N}\in[0,1]$ but it doesn't help on solving the sup, any idea on it? $\endgroup$ – pidig May 27 '12 at 15:26

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.