You buy a call and sell a put with the same strike e s0e, Ask an Expert

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You buy a Call and sell a Put with the same strike E = S0e rT .

1. Plot the payoff diagram of your spread; calculate the formula for it and simplify it.

2. Derive the price for your spread from first principles (e.g. using the Portfolio Lemma).

3. Derive the price for your spread from the put-call parity.

4. Why is such a spread called “synthetic forward”?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92305190

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