Simulation C Upfront premium = $100,000 Number of Contracts = 11,047 if S,

Simulation C Cpfront premium S I OO,OOO Number of Contracts 11,047 if Sr < X: then O if xt < * < X: then* -Xl Contract Payoff = if,x: ifX3 then -X ) Y-S30; x: -S35; Xy-S40 You will need to determine the portfolio strategy to replicate these payoffs, based on the strategy rules above. Hint: This is a portfolio of long and short options. The portfolio consists cf call options with 3 different strike prices. For some Ofthe strike(s), the exposure is a long position, Other strike(s), the exposure is a short position First, use both the contract payoff function and the payoff graph above to help figure out the portfolzo composition, Then. calculate the hedge quantities and (E) for each of the 3 strike exposures based cn v.hether the exposure is long or short for that particular strike. Tc get the overall portfolio target quantities (Q,tEi and Qd), you need to aggregate the quantities across the 3 different strikes, tc account for any offsetting hedge quantities due to long Vs. short exposure. Note that the number ofcontracts, I I ,047. is for one "unit" ofthe portfolio, each unit of the portfolio consists of multiple options (e.g., the long or short exposure tc each of the three striked options. As an example, if the portfolio had one long position for each of the three strikes, use a contract amount of 11,047 to calculate the target quantities for each Of the three individual options.