a))consider the following portfolio - hold call option with strike price E1, for the same asset and expiry date write another call option with the strike price E2 with E2 < E1, plus hold 1 share of the same asset. Derive formula for the value of the portfolio at expiry and draw the payoff diagram.

b))For each portfolio determine whether the payoff diagram can be computed as a function of one variable (price of asset for a single company.) Provide argument. If yes, draw the payoff diagram. Assume that the annual interest risk-free rate is r=10%.

Portfolio1 - Hold call option with parameters E1, T1 on asset S and write 2 put options with parameters E2, T2 on asset S with E2 > E1 and T2 > T1.

Portfolio2 - Hold call option with parameters E, T on asset S1 and write 2 put options with parameters E, T on asset S2.

Portfolio3 - At time zero the portfolio is - Hold call option with parameters E, T=6months on asset S, write 2 put options with parameters E, T=6months on asset S, plus $10 cash.