# Question

The box on page 282 discusses the following result: If the strike price of a European put is set to equal the forward price for the stock, the put premium increases with maturity.

a. How is this result related to Warren Buffett’s critique of put-pricing, discussed in Section 22.6?

b. In Chapter 9 there is a no-arbitrage proof of the result. Using an economic argument (i.e., using terms such as “consumption” and “marginal utility”), explain the result.

a. How is this result related to Warren Buffett’s critique of put-pricing, discussed in Section 22.6?

b. In Chapter 9 there is a no-arbitrage proof of the result. Using an economic argument (i.e., using terms such as “consumption” and “marginal utility”), explain the result.

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