Box Spread

a) Let K be the ATM strike for both calls and puts and let K_-+. What are the required premiums for a Box Spread? b) Demonstrate that the net premiums in part a) are equal to - (K₊ -K )e ^-rT at t = 0. c) Demonstrate that net payoffs (not premiums, just payoffs) for a Box Spread at t = T are equal to K₊ K in the expiration scenarios below. Scenario: S_T T + Scenario: S_T > K₊

Box Spread (??? + ??? + ??? + ???) 25.00 20.00 15.00 10.00 5.00 Profit ($) 0.00 ??? Purch ATM Call ...... ???Wrat ATM Pat ??? Wyit OTM call ???Parch itm put -Box Spread (Comb) 20 25 30 45 50 55 60 (5.00) (10.00) (15.00) (20.00) (25.00) Box Spread (??? + ??? + ??? + ???) 25.00 20.00 15.00 10.00 5.00 Profit ($) 0.00 ??? Purch ATM Call ...... ???Wrat ATM Pat ??? Wyit OTM call ???Parch itm put -Box Spread (Comb) 20 25 30 45 50 55 60 (5.00) (10.00) (15.00) (20.00) (25.00)