At time t, Lucinda knew the following information. For Company ABC and its associated options Put option premium $5 Call option premium $6 Put option exercise price $100 Call option exercise price $100 Current share price $100 Interest rate 4% p.a. Time to maturity 3 months For Company XYZ and its associated options Put option premium $3 Call option premium $2 Put option exercise price $60 Call option exercise price $60 Current share price $60 Interest rate 4% p.a. Time to maturity 3 months Part 1 Lucinda is considering choices between two option trading strategies: Strategy one: writing European call options over Company ABC Strategy two: buying European put options over Company XYZ Show clearly labelled payoff diagrams for each strategy and provide an analysis of the conditions under which Lucinda would gain or lose. If Lucinda was concerned about solvency risk, which strategy would you advise more caution on proceeding with? What steps could Lucinda take to mitigate this risk? Part 2 Does put-call option parity hold for Company ABC or Company XYZ? Show your working and explain the significance of your findings. At time t, Lucinda knew the following information. For Company ABC and its associated options Put option premium $5 Call option premium $6 Put option exercise price $100 Call option exercise price $100 Current share price $100 Interest rate 4% p.a. Time to maturity 3 months For Company XYZ and its associated options Put option premium $3 Call option premium $2 Put option exercise price $60 Call option exercise price $60 Current share price $60 Interest rate 4% p.a. Time to maturity 3 months Part 1 Lucinda is considering choices between two option trading strategies: Strategy one: writing European call options over Company ABC Strategy two: buying European put options over Company XYZ Show clearly labelled payoff diagrams for each strategy and provide an analysis of the conditions under which Lucinda would gain or lose. If Lucinda was concerned about solvency risk, which strategy would you advise more caution on proceeding with? What steps could Lucinda take to mitigate this risk? Part 2 Does put-call option parity hold for Company ABC or Company XYZ? Show your working and explain the significance of your findings