Consider a European call option on a non-dividend-paying stock. The strike price is (K), the time to

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Consider a European call option on a non-dividend-paying stock. The strike price is $K$, the time to expiration is $T$, and the price of one unit of a zero-coupon bond maturing at $T$ is $B(T)$. Denote the price of the call by $C(S, t)$. Show that

image text in transcribed

[Consider two portfolios:

(a) purchase one call,

(b) purchase one share of stock and sell $K$ bonds.]

image text in transcribed

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Investment Science

ISBN: 9780199740086

2nd Edition

Authors: David G. Luenberger

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Question Posted: Apr 20, 2024 12:00 PM

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Consider a European call option on a non-dividend-paying stock. The strike price is (K), the time to

Question:

C(S,1) max[0,S-KB(T)].

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Investment Science

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