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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
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%
Portfolio 1:
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.
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