Question: Binary call and put options give the following payoff at maturity T: If S(T) > E, the binary call pays a fixed amount L, otherwise

Binary call and put options give the following payoff at maturity T: If S(T) > E, the binary call pays a fixed amount L, otherwise nothing. If S(T) 2 E, the binary put pays nothing, otherwise a fixed amount L. Show using a no-arbitrage argument that binary options with the same T and same strike price E satisfy the following put-call parity relation: | C + P = Le-T

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Pumped Up Company purchased equipment from Switzerland for 140,000 francs on December 16, 20X7, with payment due on February 14, 20X8. On December 16, 20X7, Pumped Up also acquired a 60-day forward...

Q8:2 Binary call and put options give the following payoff at maturity T: If S(T) E, the binary call pays a fixed amount L, otherwise nothing. If S(T) > E, the binary put pays nothing, otherwise a...

I need a step by step solutions for the 10 problems in the excel file. The correct answers are provided I only need the solutions steps. Subject is Finance (options valuation) On March 2, a Treasury...

HI! can you please answer the Long answer question #1, part h), on the attached file! Thank you very much UNIVERSITY OF MANITOBA Faculty of Management Department of Accounting and Finance Professors:...

I need verification if my answers are right see page 14 of sample final and attached picture. Did I do it right or is the hedging options column wrong? UNIVERSITY OF MANITOBA Faculty of Management...

Attached is a file. See page 14. I need answer for part e). Please read instructions for rounding rules. UNIVERSITY OF MANITOBA Faculty of Management Department of Accounting and Finance Professors:...

Hi I need answers immediately. Attached is a file. I need the detailed solutions (no excel, can be typed or handwritten) to the long answer portions ONLY. Please read instructions for rounding rules....

Attached is a file. See page 14. I need answer for part d). Please read instructions for rounding rules. UNIVERSITY OF MANITOBA Faculty of Management Department of Accounting and Finance Professors:...

Please help! Provided answers in excel spreadsheet Black-Scholes model for pricing European puts, calls Input data Type of option (1 for call, 2 for put) Stock price Exercise price Duration (years)...

can you help with questions 41-80? I have attached the document again for reference. 1. The form of organization for a business is not an important issue, as this decision has very little effect on...

I need drastic help. I have attached a document that is to help me in my finance class. Are you able to help me work through this set of questions? 1. The form of organization for a business is not...

Draw the stick diagram based on the equation given above? Boolean Expression Y = BC + ABC + ABC + D De Morgan's Theorem Y = ABC + ABC + ABC + D Y = (ABC + ABC) (ABC + D) = (ABC) (ABC) [(ABC)(D)] = (...

Explain the various components of the supply and value chain.

Find f ' and f ' ' . f ( x ) = l n ( x 2 - 9 )

A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,400 and is paid at the beginning of the first year. Seventy percent of the...

Explain Optical absorption in semiconductors.

Give 3 products you sell in your Stationery shop and give each 3 reasons why you choose that product.

Future Tax Deductions A. Result in deferred tax liabilities. B.Rresult in deferred tax assets. C. Occur where the tax basis of assets is less than the financial reporting basis. D. Occurs where the...

It is a form of ecotourism rooted in having communities appreciate that local shark species are more valuable alive than dead is it shark tourism is it nautical tourism is it music tourism

Should this plan be extended to pressers in the other stores? The question of whether to pay Carter Cleaning Centre employees an hourly wage or an incentive of some kind has always intrigued Jack...

Astore managers job is to keep total wagesto no morethan 30 percent of sales and to maintain the fuel bill and the supply bill at about 9 percent of sales each. Managers can also directly affect...

Develop a performance appraisal method for the workers and managersin each store After spending several weeks on the job, Jennifer was surprised to discover that her father had not formally evaluated...