- Joined
- 12/11/13
- Messages
- 17
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- 11
Hi everyone,
I am trying to the answer the following question:
A derivative has a payoff of S2/S1 at the end of year 2. S1 and S2 are respectively the underlying price at the end of year 1 and 2. What is the price of the derivative?
The problem is that this question is very vague. Do you think I should try to solve it under the Black and Scholes scope? or I should right down something like:
S0(1+r)²=S1(1+r)=S2
Making the assumption that the interest rate is constant.
Thank you for you help. I must confess that I don't really see how to tackle this problem.
I am trying to the answer the following question:
A derivative has a payoff of S2/S1 at the end of year 2. S1 and S2 are respectively the underlying price at the end of year 1 and 2. What is the price of the derivative?
The problem is that this question is very vague. Do you think I should try to solve it under the Black and Scholes scope? or I should right down something like:
S0(1+r)²=S1(1+r)=S2
Making the assumption that the interest rate is constant.
Thank you for you help. I must confess that I don't really see how to tackle this problem.