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The payoff of a structured product is a piecewise-linear function of an underlying stock, S. The payoff has the following break points I S =
The payoff of a structured product is a piecewise-linear function of an underlying stock, S. The payoff has the following break points I S = $0: payoff = $10 I S = $10: payoff = $20 I S = $20: payoff = $40 How would you replicate the payoff of the structured product using only riskless bonds, the stock, and calls on the stock? Assume the riskless rate is 0%..
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