N
NS206
Member
Hi,
In this question, part (iii) we need to explain whether or not to buy the option at the price offered. In the answers, the value of q is said to be less than p since the expected growth in log returns is lower, giving 1.28% vs 4.28%. Where does the 1.28% come from? This is also required later, and there is a formula given ( r - 0.5*sigma^2) but it's not clear where this is coming from to me.
Thank you!
In this question, part (iii) we need to explain whether or not to buy the option at the price offered. In the answers, the value of q is said to be less than p since the expected growth in log returns is lower, giving 1.28% vs 4.28%. Where does the 1.28% come from? This is also required later, and there is a formula given ( r - 0.5*sigma^2) but it's not clear where this is coming from to me.
Thank you!