Excellent explanation @ShaktiRathore . It is clear to me now.
I checked the mean of a log-normal distribution is mu+sigma^2/2 (ref:https://en.wikipedia.org/wiki/Log-normal_distribution and http://www.mathworks.com/help/stats/lognstat.html?refresh=true) but I get the idea now.
I am done with...
Hi @David Harper CFA FRM
I have a decent idea about the intuition as to why N(-d2) is the PD. I am able to understand the intuiton behind ln(V(0)/k) and adding drift to calculate the distance.
I understand this as follows: We calculate how many standard deviations would the expected value...
There was a reading "Hull, Options, Futures, and Other Derivatives Bionic Turtle FRM Study Notes Reading 28 -- R28.P2.T5.Hull_v3.pdf" but I don't see it now. Does this mean its not there in the curriculum for Part 2 ?
@David, in bonus part of Q4, if we take the derivative of the price, P w.r.t. T, won't that give us the time, T when we get the maximum price. In my opinion, we would probably have to take the derivative of $Dur with respect to time to get the local maximum. Please correct me if I am wrong.