The box on page 282 discusses the following result: If the strike price of a European put
Question:
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.
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
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a Warren Buffett emphasizes that longterm put options are in his opinion very expensive and that you ...View the full answer
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