The price of a stock is modeled with a geometric Brownian motion with drift μ=-0.25 and volatility σ=0.4. The stock currently sells for $35.  Assume that an option is available to purchase the stock in six months for $40. Find the expected payoff of the option.

Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter5: Inverse, Exponential, And Logarithmic Functions
Section: Chapter Questions
Problem 9T
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The price of a stock is modeled with a geometric Brownian motion with drift μ=-0.25 and volatility σ=0.4. The stock currently sells for $35. 
Assume that an option is available to purchase the stock in six months for $40. Find the expected payoff of the option.

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