In an arbitrage-free securities market, there are two nondividend-paying stocks, A and B, both with current price

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In an arbitrage-free securities market, there are two nondividend-paying stocks, A and B, both with current price $90. There are two possible outcomes for the prices of A and B one year from now:

Outcome 1 2 A $100 $60 B $80 $x

The current price of a one-year 100-strike European put option on B is $15. Determine all possible values of x.

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Derivative Pricing

ISBN: 9780367734213

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Authors: Ambrose Lo

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Question Posted: Nov 22, 2023 08:11 AM

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In an arbitrage-free securities market, there are two nondividend-paying stocks, A and B, both with current price

Question:

Outcome 1 2 A $100 $60 B $80 $x

Step by Step Answer:

Assumptions The market is arbitragefree There are no transaction costs or taxes The put option is European meaning it cannot be exercised early The pu...View the full answer

Derivative Pricing

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