Question: Because options are zero-sum games, the writers payoffs are just the negatives of the sellers. Demonstrate the following (by algebraic arguments or by using numbers):
Because options are zero-sum games, the writer’s payoffs are just the negatives of the sellers. Demonstrate the following (by algebraic arguments or by using numbers):
a. The call seller’s payoff at expiration is −max(0, S – K) = min(0, K – S)
b. The put seller’s payoff is −max(0, K – S) = min(0, S – K)
a. The call seller’s payoff at expiration is −max(0, S – K) = min(0, K – S)
b. The put seller’s payoff is −max(0, K – S) = min(0, S – K)
Step by Step Solution
★★★★★
3.46 Rating (162 Votes )
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
A A call buyers payoff at expiration is zero if the stock price at e... View full answer
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
Document Format (1 attachment)
646-B-B-F-M (2649).docx
120 KBs Word File