e are pricing a contract that allows to purchase a
-denominated
stock
for the $-amount
at time
.
The cashflow at time
is
if we take a view of a $-observer. However, it is easier to take a view of a
-observer:
.
The
value
of the stock at
is equal to the
value
of the stock at
(no-dividend assumption). We obtain
dollars at
if we invest
dollars into the dollar bond. Hence, the value of the contract is
The "no tricks" approach would be to say
that
in agreeement with (
Risk_neutral_pricing
)
and note that the
is a traded asset on $ market. Hence,
is a
-martingale.
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