medium · Quantitative Finance stochastic
What happens to the Feynman-Kac solution if the terminal payoff f(X_T) is a constant value K?
- The solution is simply the present value of K, which is K e^-r(T-t).
- The solution becomes the spot price of the underlying S_t.
- The solution is zero because there is no uncertainty.
- The solution is K, because discounting only applies to random variables.
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