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.


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  • CreatedAugust 12, 2015
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