L1
Binary Cash-or-Nothing Option
Junior Quant · Derivatives Pricing
Binary cash-or-nothing: pays $1 if S_T > K, zero otherwise. Price it and derive its delta.
Question
Price a binary cash-or-nothing option under Black-Scholes. Derive its delta. How does delta behave as expiry approaches for an at-the-money binary, and why does this matter for hedging?