Let 1m N - 1 and K >0 be given. A chooser option is a contract...

 

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Let 1m N - 1 and K >0 be given. A chooser option is a contract sold at time zero that confers on its owner the right to receive either a call or a put at time m. The owner of the chooser may wait until time m before choosing. The call or put chosen expires at time N with strike price K. Show that the time-zero price of a chooser option is the sum of the time-zero price of a put, expiring at time N and having strike price K, and a call, expiring at time m and having strike price (1+r) N-m K Let 1m N - 1 and K >0 be given. A chooser option is a contract sold at time zero that confers on its owner the right to receive either a call or a put at time m. The owner of the chooser may wait until time m before choosing. The call or put chosen expires at time N with strike price K. Show that the time-zero price of a chooser option is the sum of the time-zero price of a put, expiring at time N and having strike price K, and a call, expiring at time m and having strike price (1+r) N-m K

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