Consider a call option written on a put option. The call option matures at t = 1 with strike price K = 10, and the put option matures at t = 2, with strike price K = 100. The underlying risky asset follows: t = 0, s1 = 100; t = 1, s2 = 81.87, s3 = 122.14; t = 2, s4 = 67.03, s5 = 100, s6 = 149.18

The interest rate is given by r = ln(1.05).

(a) Find the price for call option.

(b) Can we perfectly hedge this call option using the underlying asset and the money market account? If so, how?

Answer rating: 100% (QA)

a Find the price for call option ANS WER The price of the call option is 10 47 WORK ING The underlyi... View the full answer