Question: Exercise 1.11. Let K,T > 0 be given. Let C and P be European calls and puts, respectively, on the same stock S (that pays

Exercise 1.11. Let K,T > 0 be given. Let C and

Exercise 1.11. Let K,T > 0 be given. Let C and P be European calls and puts, respectively, on the same stock S (that pays no dividends). Assume that C and P have the same maturity date T and the same strike price K. At t = 0 an investor buys one put, buys one share of stock, and sells short one call option. Find a formula (simplified as much as possible) for the terminal capital Xt of this strategy. Sketch the graph of Xt as a function of St (the terminal stock price). Exercise 1.11. Let K,T > 0 be given. Let C and P be European calls and puts, respectively, on the same stock S (that pays no dividends). Assume that C and P have the same maturity date T and the same strike price K. At t = 0 an investor buys one put, buys one share of stock, and sells short one call option. Find a formula (simplified as much as possible) for the terminal capital Xt of this strategy. Sketch the graph of Xt as a function of St (the terminal stock price)

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