Quantitative Asset And Liability Modelling
d) European gap put option:
Stricke price = K1
Payment trigger = K2
Expiry date = T
Optimal payment level of trigger K2 =
GapPut(S,K1,K2,T) = K1e^-rT *N (-d2) –Se ^–dt N (-d1)
Suitable upper bond = [p <= K1*exp(-rt)]
e) Current price S0 = $ 20
Risk free force of interest = 3%
Continuously compounded real world drift = 7%
Volatility =15%
Time = 2 years
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