An investor wrote a 45-strike European call option on an index with three years to expiration. The

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An investor wrote a 45-strike European call option on an index with three years to expiration. The premium for this option was 4.

The investor also bought a 55-strike European call option on the same index with three years to expiration. The premium for this option was 2.5.

The continuously compounded risk-free interest rate is 2%.

Calculate the index price at expiration that will allow the investor to break even.

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Derivative Pricing

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Question Posted: Nov 22, 2023 08:11 AM

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An investor wrote a 45-strike European call option on an index with three years to expiration. The

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Answer To calculate the index price at expiration that will allow the investor to break even we need to consider the different strike prices and premiums of the call options Lets denote the index pric...View the full answer

Derivative Pricing

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