=+Because of our aim to find a fair price, for every possible outcome, the writer must have where f(s) is the payoff function of the option considered (e.g., f(s) = (s – K)

+ for a call and f(s) = (K – s)+

for a put). If at least one realisation is such that V1 < f(S1

), the writer will be unable to meet his obligation. If, however, V1

> f(S1

), he has a riskless profit with a positive probability.

We have two free variables ϕ and ψ and two equations, (7.1) and (7.2), which give us:

and, solving them, we obtain