5 (10 points) A K strike power put is an option with payout (K ST)2 at time T if ST 5 (10 points) A K strike power put is an option with payout (K ST)2 at time T if ST K, and zero otherwise For KI 1 2, a KI, K2 capped power put is a Krstrike power put whose payout is capped at KI, that is the payout at time T is (K2 KI)2 (K2 ST)2 Suppose you observe C90(t, T) if if if ST KI KI SST 1C2 K2 ST 2, and Z (t, T) 0 4 Give the least expensive upper bound for the price of a 90, 100 capped power put in terms of Go (t, T), T), and Z(t, T) You may assume that all options are European style with maturity T on a stock paying no dividends Hint Consider a portfolio of puts whose payout is always greater than or equal to the payout of the capped power call at maturity Then use put call parity

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5  (10 points) A K strike power put is an option with payout (K ST)2 at time T if ST 5  (10 points) A K strike power put is an option with payout (K ST)2 at time T if ST   K, and zero otherwise  For KI   1  2, a KI, K2 capped power put is a Krstrike power put whose payout is capped at KI, that is the payout at time T is  (K2 KI)2 (K2   ST)2 Suppose you observe C90(t, T) if if if ST   KI KI SST  1C2 K2   ST  2, and Z (t, T) 0 4  Give the least expensive upper bound for the price of a 90, 100 capped power put in terms of Go (t, T), T), and Z(t, T)  You may assume that all options are European style with maturity T on a stock paying no dividends  Hint  Consider a portfolio of puts whose payout is always greater than or equal to the payout of the capped power call at maturity  Then use put call parity

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5. (10 points) A K-strike power put is an option with payout (K ST)2 at time T if ST 5. (10 points) A K-strike power

5. (10 points) A K-strike power put is an option with payout (K ST)2 at time T if ST < K, and zero otherwise. For KI < 1

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