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March 16th, 2012, 10:18 PM   #1
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Black Scholes

I have struggled without luck to solve the question below and will be grateful for any solutions.

Consider the Black-Scholes world with a stock that follows geometric Brownian motion. A
derivative has the following payo? at maturity: Sn
T, i.e. the nth power of the stock price at
maturity, where n is a known constant. Use the risk-neutral valuation method to calculate a
pricing formula for this derivative.
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