You have $10,000,000$ TL and want to invest in a stock for $1$ year with current price $S0=500.$

But you cannot afford to lose more than $15\%$ of your investment.

a$)$ How can you achieve your aim $($using European options$)?$

Describe $2$ alternatives ways of achieving it$.$ No calculation needed; you just have to explain

the structure

b$)$ Show the cashflows for both alternatives and for each case where $St=400$ and $St=450$

For this part of exercise do not consider option premiums $(C=P=0)$ and assume interest rate

$=0\%$

c$)$ As you will notice expected payoffs are not consistent in the above. This is because in

one of the alternatives the option is in$-$the$-$money. The option price should include

immediate exercise $($even it is an european option$).$ According to your findings and taking

into consideration the rule of No$-$Arbitrage and law of one price what should be the price of

the call option if the price of the put option is $0?$

d$)$ Now recalculate the payoffs using the put option @ $425$ price $=25TL,$ and risk$-$free

interest rate of $10\%.$ Are the results consistent? You have $10,000,000$ TL and want to invest in a stock for $1$ year with current price S$0=500.$ But you cannot afford to lose more than $15\%$ of your investment.

a$)$ How can you achieve your aim $($using European options$)?$

Describe $2$ alternatives ways of achieving it$.$ No calculation needed; you just have to explain the structure

b$)$ Show the cashflows for both alternatives and for each case where St$=400$ and St$=450$

For this part of exercise do not consider option premiums $($C$=$P$=0)$ and assume interest rate $=0\%$

c$)$ As you will notice expected payoffs are not consistent in the above $.$ This is because in one of the alternatives the option is in$-$the$-$money. The option price should include immediate exercise $($even it is an european option$).$ According to your findings and taking into consideration the rule of No$-$Arbitrage and law of one price what should be the price of the call option if the price of the put option is $0?$

d$)$ Now recalculate the payoffs using the put option @$425$ price $=25$ TL$,$ and risk$-$free interest rate of $10\%.$ Are the results consistent?