Consider the model, C = N(d1)St − N(d2)Ke−rt, where d1 =[ln st/K+ (r +σ2/2) t ] /σ√t and d2 = d1 − σ√t. State the above model and explain the importance of the model in mathematics of finance.

Consider the model, C = N(d1)St − N(d2)Ke−rt, where d1 =[ln st/K+ (r +σ2/2) t ] /σ√t and d2 = d1 − σ√t. State the above model and explain the importance of the model in mathematics of finance.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 5MC

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Question

Consider the model,

C = N(d₁)S_t − N(d₂)Ke^−rt,

where

d₁ =[ln st/K+ (r +σ^2_/2) ^t ] /σ√t

and

d₂ = d₁ − σ√t.

State the above model and explain the importance of the model in mathematics of finance.

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