2. (Forward versus Option) Consider a short position in one forward contract and a long position...

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2. (Forward versus Option) Consider a short position in one forward contract and a long position in one European put option on some stock A. Both the forward and option have a maturity of 1 month. One such forward contract corresponds to 100 shares of stock A. The forward price and the option strike price are both $45 per share of the underlying stock A. One such option contract corresponds to 100 shares of stock A and has a premium of $250. Denote the price (per share) of stock A after 1 month as ST. Ignore the time value of money. = (a) If ST $35, which position provides a higher net profit, the forward position or the option position? (b) For what values of ST does the forward position provide a higher net profit. than the option position? (c) Consider a portfolio consisting of a long position of one European put option as above, and a long position of one European call option with the same strike price, underlying stock, contract size, and maturity but with a premium of $300. For what values of ST does this portfolio have a positive net profit? 2. (Forward versus Option) Consider a short position in one forward contract and a long position in one European put option on some stock A. Both the forward and option have a maturity of 1 month. One such forward contract corresponds to 100 shares of stock A. The forward price and the option strike price are both $45 per share of the underlying stock A. One such option contract corresponds to 100 shares of stock A and has a premium of $250. Denote the price (per share) of stock A after 1 month as ST. Ignore the time value of money. = (a) If ST $35, which position provides a higher net profit, the forward position or the option position? (b) For what values of ST does the forward position provide a higher net profit. than the option position? (c) Consider a portfolio consisting of a long position of one European put option as above, and a long position of one European call option with the same strike price, underlying stock, contract size, and maturity but with a premium of $300. For what values of ST does this portfolio have a positive net profit?