A chooser option expires in 6 months, but the owner must make the choice in 4 months. The strike price is $27 and the underlying asset is currently worth $26.39. A call option that expires in 6 months (same underlying asset, strike price = $27) has a premium of $4.41 and an identical put has a premium of $5.15. An otherwise identical call that expires in 4 months costs $3.69 and its put option counterpart costs $4.16. What should be the premium for this chooser option? Answer: x Derivatives are like building blocks or puzzle pieces that can be combined with other assets to replicate things such as the underlying asset (see put-call parity) or other derivatives. Think about what a chooser option is and how it can be used to replicate something else or be replicated itself. The correct answer is: 7.85 A chooser option expires in 6 months, but the owner must make the choice in 4 months. The strike price is $27 and the underlying asset is currently worth $26.39. A call option that expires in 6 months (same underlying asset, strike price = $27) has a premium of $4.41 and an identical put has a premium of $5.15. An otherwise identical call that expires in 4 months costs $3.69 and its put option counterpart costs $4.16. What should be the premium for this chooser option? Answer: x Derivatives are like building blocks or puzzle pieces that can be combined with other assets to replicate things such as the underlying asset (see put-call parity) or other derivatives. Think about what a chooser option is and how it can be used to replicate something else or be replicated itself. The correct answer is: 7.85