>
> What I understood, you are saying that present value of your payoff is:
>
> exp(-.02)*mucallvals)
>
> but, in this case, atleast you can not discount your payoff by the risk
> free
> rate, i.e. you can not use the expression "exp(-.02)" for discounting
> purpose. Your return distribution i.e. "mustocks<-exp(rnorm(10000,
> mean=.15,
> sd=vol)) " is in real world, right?
>

I am not pricing the call, just buying and holding it until expiration.  On
some paths, the call will expire in the money, so I will get S(1)-K>0 at
t=1.  On the others I will get 0. These are dollar amounts received at t=1.
How do you evaluate these dollar amounts at t=0?

Again, I am not pricing this call, and I am especially not erroneously
arguing that the call is "worth" the mean present value of .165 as opposed
to the arb-free price of .05.  I am wondering whether, if you hold this
call, 50% of the time will you make more than .165, and 75% of the time you
will get more than .08?  Again, none of these are call prices or values, and
I'm not trying to apply risk-neutral pricing here.  I'm trying to know
whether these are the distribution of returns when you hold the call?

Thanks again
-Neal

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