<t>If the interest rate is > 0, we no longer have a martingale and Opt. Stop. Th does not apply; however, we can use a change of measure (a concept from measure theory) to make it a martingale. In English, this means that the price should be < 0.8.As the interest rate approaches infinity, the value ...

That's why I'm not going to pay you 2, I am only going to pay you 0.8. I do not have a clue as to what happens to lognormality here, good question...By the way; where do you get 1.2 dollars lunch these days?

Oh, Zoidberg just had a calculation error; 2 is not 1/45 of 150, it is 1/75, therefore what you should pay is not 60/45, but instead 60/75 = 0.8. Awesome, you arrive to the same solution that I got thru martingales. 0.8 IS the answer and we gave 2 different methods to prove it. YES!

Yep Zoidberg, I like that solution! Simple and clean

OOps, confused names; it is optional stopping, not optimal stopping theorem

<t>I know exactly that a lognormal price can only be positive, but it was never given to us in the problem; It was an assumption that you made. It makes more sense to me to think of it as a martingale and to apply the optimal stopping theorem, that way, the probability of hitting 150 before 0 would ...

The second event (maturity 1 year), can be treated as a digital option.

The price is not 2, because there is the possibility that the price hits 0 before reaching 150, (in words, you need the event to happen before the company goes bankrupt).HINT: It is a martingale process

<r>Hello everyone;I was checking out the bloomberg terminals and I found out about the Hurst Exponent; I googled the subject and I found this interesting website:<URL url="http://www.bearcave.com/misl/misl_tech/wavelets/hurst/Now"><LINK_TEXT text="http://www.bearcave.com/misl/misl_tech/ ... /hurst/N...

Player; sorry bec. this is not an answer to your question. But I need some papers to start a project at my university... Do you know of some of them for multiasset options?