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Mathematics course of the University of Cambridge

Past exam of the mathematics course of the University of Cambridge

2020

Paper 4

For a <European call option>, the pointwise inequality $(S_T-K)^+\geq S_T-K$ and <risk-neutral pricing> give
$$
V_0\geq e^{-rT}(\mathbb E_{\mathbb Q}S_T-K)
=e^{-rT}(S_0e^{rT}-K)
=\boxed{S_0-e^{-rT}K}.
$$

Solution

Past exam of the mathematics course of the University of Cambridge / 2020 / ii / Paper 4 / 29K / iii / Solution

Past exam of the mathematics course of the University of Cambridge / 2020 / ii / Paper 4 / 29K / iii / Solution

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Past exam of the mathematics course of the University of Cambridge / 2020 / ii / Paper 4 / 29K / iii / Solution

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