Question: 4. Suppose that, at some time t, you construct a portfolio containing the following derivatives, all with the same underlying share: (1) A forward contract

4. Suppose that, at some time t, you construct a portfolio containing the following derivatives, all with the same underlying share: (1) A forward contract with delivery time I (where T > t) and delivery price K, (ii) a European put option with expiry time T and strike price K, and (ii) a short position in a European call option, also with expiry time T and strike price K. You may assume that the share pays no dividends between times t and T. (a) Determine the value of this portfolio at time T as a function of the share price Sr at that time. (b) Assuming that no arbitrage opportunities exist in the market, calculate the value of the portfolio at time t. (Hint: Be sure to justify your answer fully.) C (c) Denote the fair values at time t of the forward contract, the put option and the call option as Ft. P and Ct respectively. Derive an expression relating these three quantities

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