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We write ( x ) + = max { 0 , x } . Throughout we assume that the numeraire asset is constant and equal
We write max Throughout we assume that the numeraire asset is
constant and equal to so hat
Let and F In particular We define
Given a Basket or Index option with weights is the financial
instrument whose payoff is the random variable :
Given a Call option on asset i with strike is the financial instrument whose payoff is the random variable :
Given a Put option on asset i with strike is the financial instrument
whose payoff is the random variable :
a Find the set of prices of
b Establish the putcall parity
and obtain with its help the relationship between the set of prices of the call
option and the set of prices of the put option.
If is replicable, is then also replicable? If so what is the relationship between the replicating trading strategy of
and the replicating strategy of
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