Simply Brilliant
04-03-2007, 11:56 AM
Both of the questions read the same way. 14.19 has a negative correlation and 14.20 has a positive correlation. The exchange option in 14.19 is not 1 to 1 and the exchange option in 14.20 is one to one.
Why is d1 in 14.19 calculated
(&2-&1 +.59(std)^2)(T) for the numerator
and d1 in 14.20 calculated
(ln(S/K) + &2-&1+.5(std^2)(T) for the numerator.
Why is there a difference in the calculation of d1 between the 2 problems and how do recognize what to use between these two problems. Also on pg 212, for a one-to-one option it has that
d1=ln((Se^(&1T))/(Ke^(&2T) +.5(std^2)T for the numerator
I would think that the difference between 14.19 and 14.20 is because of the 1to1 exchange rate except the numerator in the explanation does not follow the answer for 14.20?
Why is d1 in 14.19 calculated
(&2-&1 +.59(std)^2)(T) for the numerator
and d1 in 14.20 calculated
(ln(S/K) + &2-&1+.5(std^2)(T) for the numerator.
Why is there a difference in the calculation of d1 between the 2 problems and how do recognize what to use between these two problems. Also on pg 212, for a one-to-one option it has that
d1=ln((Se^(&1T))/(Ke^(&2T) +.5(std^2)T for the numerator
I would think that the difference between 14.19 and 14.20 is because of the 1to1 exchange rate except the numerator in the explanation does not follow the answer for 14.20?