Explain why the sum of prices of the call-on-a-call and call-on-a-put is equal to the price of

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Explain why the sum of prices of the call-on-a-call and call-on-a-put is equal to the price of the call with expiration T₂. Show that the price of a European call-on-a-put is given by 3 Option Pricing Models: Black–Scholes–Merton Formulation

c(S, t) = Xe-(2-1) N(a2, -b; -p) - SN(a, b; -p) er(T) XN (a2), where a₁,b₁,a₂ and b₂ are defined in Sect. 3.4.4

Use the relation

N(a, b; p) + N(a, b; p) = N(a).

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Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Dec 02, 2023 04:02 AM

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Explain why the sum of prices of the call-on-a-call and call-on-a-put is equal to the price of

Question:

c(s, t) = X₂e-¹(2-1) N₂(a2, -b₂; - p) - SN₂(a₁, b₁; -p) — e¯r(T₁−¹) X₁N (a2),

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The sum of prices of a callonacall and callonaput being equal to the price of a call with expiration T2 is a result of the putcall parity principle in ...View the full answer

Mathematical Models Of Financial Derivative

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