4. A chooser option gives the buyer the right to choose between a call option and a put option with the same strike price and maturity at a predetermined time before maturity. In Example 3.2 (of the lecture note), we consider a chooser option with exercise price $7 and decision time T = 1. Calculate the value of this chooser option at time t = 0. Both the call and put option have the same maturity at time T = 2. Solution: Recall that when r = 0. the conditional risk neutral probabilities are (1/1,3/4), ((2/3.1/3), (1/32/3))) max (0,-K + S2) = (2,0,0,0). Therefore the The payoffs of the call option are X, time-l prices of the call option are 4. A chooser option gives the buyer the right to choose between a call option and a put option with the same strike price and maturity at a predetermined time before maturity. In Example 3.2 (of the lecture note), we consider a chooser option with exercise price $7 and decision time T = 1. Calculate the value of this chooser option at time t = 0. Both the call and put option have the same maturity at time T = 2. Solution: Recall that when r = 0. the conditional risk neutral probabilities are (1/1,3/4), ((2/3.1/3), (1/32/3))) max (0,-K + S2) = (2,0,0,0). Therefore the The payoffs of the call option are X, time-l prices of the call option are