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Results tagged with geometric-brownian
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user 47092
4
votes
Find a formula for the price of a derivative paying $\max(S_T(S_T-K),0)$
It's just Girsanov's theorem.
I suppose that under the risk neutral measure Q
$$dS_{t}= r S_{t} dt + \sigma S_{t}dW_{t},$$ $$S_{t} = S_{0}\exp\left((r-\frac{\sigma^{2}}{2})T + \sigma W_{T}\right)$$
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