Markets: A Rigorous Course

M12 · Problem 11 ★★ Check

Breakeven tail probability

In Worked example 12.3, find the escalation probability p2p_2 at which the put's expected contribution is zero, holding the scenario prices fixed. Interpret p2p_2 as a crude "market-implied" tail probability and compare it with the trader's 20%.

Answers

Commas, ₹, % and 1e-3 notation are accepted.

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