Let C gap (K 1 , K 2 ) and P gap (K 1 , K 2

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Let C^gap(K₁, K₂) and P^gap(K₁, K₂) be the current prices of a T-year European gap call option and a T-year European gap put option, respectively, both with a strike price of K₁ and a payment trigger of K₂. Prove that

Identify K^∗.

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Derivative Pricing

ISBN: 9780367734213

1st Edition

Authors: Ambrose Lo

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Question Posted: Nov 24, 2023 10:31 PM

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Let C gap (K 1 , K 2 ) and P gap (K 1 , K 2

Question:

Cgap (K₁, K₂) - pgap (K₁, K₂) = FT(S) - K*e-T.

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Derivative Pricing

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