Option combination is daisy position equivalent

Assignment Help Financial Management

Reference no: EM131935523

Daisy buys a put on ∏ with strike K that expires at time T, and sells a call on ∏ with strike K that expires at time T . Let S(t) denote the price per share of ∏ at time T , and let r denote the continuously compounded risk-free rate. Assume that ∏ does not pay dividends.

(a) What is the payoff function for Daisy's combined position in terms of the indicated variables?

(b) To what other, distinctly different, kind of contract or option combination is Daisy's position equivalent?

(d) If the two portfolios have the same payoff at time T, then they must have the same value at time 0. Write out the indicated equation.

Reference no: EM131935523

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