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Please answer a, b, c, and d Feel free to draw it on a piece of paper 3. Options. There are three securities for trading
Please answer a, b, c, and d
Feel free to draw it on a piece of paper
3. Options. There are three securities for trading on the market, a risky stock with current price St, and two European options written on the stock: a call and a put. Both options mature at T and have the same strike(exercise) price K. The current price of call and put are given by Ct and Pt, respectively. (a) Draw the payoff diagrams of the long call, short call, long put, and short put, with the horizontal axis being the stock price at maturity, ST. (b) Draw the profit diagrams of the long call, short call, long put, and short put, with the horizontal axis being the stock price at maturity, ST. (c) Draw the profit diagrams of long stock if you buy it today and sell it at time T. (d) Use the profit diagrams you draw to illustrate the put-call parity. (Hint: you can ignore the time value of money. Remember to mark the the corresponding quantities, e.g., the strike price and the option premium.) 3. Options. There are three securities for trading on the market, a risky stock with current price St, and two European options written on the stock: a call and a put. Both options mature at T and have the same strike(exercise) price K. The current price of call and put are given by Ct and Pt, respectively. (a) Draw the payoff diagrams of the long call, short call, long put, and short put, with the horizontal axis being the stock price at maturity, ST. (b) Draw the profit diagrams of the long call, short call, long put, and short put, with the horizontal axis being the stock price at maturity, ST. (c) Draw the profit diagrams of long stock if you buy it today and sell it at time T. (d) Use the profit diagrams you draw to illustrate the put-call parity. (Hint: you can ignore the time value of money. Remember to mark the the corresponding quantities, e.g., the strike price and the option premium.)Step by Step Solution
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