Option pricing1 an investor owns a single share of stock x, Ask an Expert

Finance

Option pricing:

1. An investor owns a single share of stock X, goes long on a 1-year 40-put, and goes short on a 1-year 50-call. Each option is written on a single share of stock X. Draw the (1-year) payoff diagram of this portfolio.

2. Assume that the price of a 50-put on a single share of stock X has been determined to be $2, that stock X share price today is $45, and that the time premium is 10%. Find a (non-trivial) lower bound for the price of a 40-call.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92772302

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