Consider a chooser option (also known as an as-you-like-it option) on stock ABC. At time (in

Consider a chooser option (also known as an as-you-like-it option) on stock ABC. At time τ (in years) with 0

You are given:

(i) The current price of stock ABC is 32.

(ii) Dividends of 1.5 are paid at times 1, 3, 5 and 7.

(iii) The continuously compounded risk-free rate of interest is 5%.

(iv) The following prices of European call options on stock ABC with various strike prices and maturity times:

(a) If τ = 6, name, with specification of the contractual details, the option strategy to which the chooser option is financially equivalent, and calculate the price of the chooser option.

(b) If τ = 2, calculate the price of the chooser option.

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Strike Price 21.84 21.84 27.28 27.28 30.00 30.00 Maturity Time (In Years) 2 6 2 6 2 6 Call Price 11.23 13.97 7.60 10.29 6.45 9.48