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Consider two European options, call and put, on the same non-dividend-paying stock. They have the same expiration T and strike price K. Portfolio A consists
Consider two European options, call and put, on the same non-dividend-paying stock. They have the same expiration T and strike price K. Portfolio A consists of a unit of call and a zero coupon bond paying K at T, Portfolio B of a unit of put and a share of the underlying stock.
a. Determine which portfolio performs better compare at T
b. What happens to the portfolios if the stock price drops to near zero?
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