Demonstrate that the payoffs of a chooser option with an exercise price of X and a time to expiration of T that permits the user to designate it as a call or a put at t can be replicated with two transactions. Specifically, by
(1) Buying a call with an exercise price of X and time to expiration of T and
(2) Buying a put with an exercise price equal to X(l + r)-(T-1) and time to expiration of t. This proof will require that you consider two possible outcomes at t (user designates it as a call or user designates it as a put according to the rule given in this chapter). For each outcome at t, there are two possible outcomes at T, ST > X or ST < X. Explain way a chooser option is less expensive than a straddle?