I'm not quite sure which bit you're talking about but it's probably down to the fact that S phi(d1) = K exp(-r(T-t)) phi (d2) where phi( ) is the PDF of a standard normal distribution.. phi(x) = exp(-x^2 / 2)/sqrt(2Pi) (see page 10 Tables) It's worth knowing this result, really useful for deriving the Greeks in the BS formula. John PS have you considered buying ASET? It contains all the explanations to the many questions on the past papers that you have been asking. I would definitely recommend it for your future exams.
Thanks John! For my future exams I'd definitely start working on the question papers along with the ASET!! but now I'd hv to wait atleast another week to be able get it!
Hello...regarding the calculations for Sept.2008,question 9(iii), could someone enlighten me how to proceed with the required calculations?? Kind Regards,
In this tricky and non-standard question, you need to partially differentiate the Black-Scholes PDE with respect to sigma. You can then rewrite the resulting formula in terms of partial derivatives with respect to vega and so obtain an equation that is similar to the Black-Sholes PDE, but with vega taking the place of the derivative price f. I've attached the relevant two pages from an old ASET that covered this question, which I hope will make clear what was required. Graham
Wow, the ASET looks really helpful. Wish I had ordered them for CT8 this time, have been struggling with some of the solutions in the examiners reports. Oh well, too late now.
Hi, Not obvious to me where the above result is from: S phi(d1) = K exp(-r(T-t)) phi (d2) Please could anyone shed some light?