medium · Quantitative Finance
If you are using the Feynman-Kac formula to price an option where the underlying S_t has a dividend yield q, how does this affect the SDE used in the expectation?
- The volatility σ is reduced by q.
- The discount factor becomes e^-(r+q)(T-t).
- The drift of S_t becomes (r - q)S_t.
- The terminal payoff h(S_T) is multiplied by e^qT.
Sign up free to see the explanation and track your rank →
More Quantitative Finance practice
- If the underlying stock price S moves by +$2.00 over a very short interval, what is the es
- What is the estimated OLS slope hatβ?
- If the flat yield curve is at 4% (continuously compounded), what is the bond's price?
- As the number of assets n approaches infinity, what happens to the total portfolio varianc
- What is the fair no-arbitrage price for a six-month (T = 0.5) forward contract?
- If the risk-neutral probability of an up move is p = 0.6 and the risk-free rate is zero, w
- When pricing a 'Digital' (or Binary) call option near expiry with the spot price very clos
- Calculate the price of a zero-coupon bond that pays $1000 in two years, given that the one