Real-World Applicationsmedium
0:00.0

A binary option pays \100ifastockpriceexceedsthestrikepriceofif a stock price exceeds the strike price of$50atexpiration,andat expiration, and$0otherwise.Ananalystmodelstheprobabilitythatthestockexceedsthestrikepriceasotherwise. An analyst models the probability that the stock exceeds the strike price asp(S) = \frac{1}{1 + e^{-(S - 50)/5}},where, where Sisthecurrentstockprice.Ifthecurrentstockpriceisis the current stock price. If the current stock price is$55$, what is the expected value of the option?