Now, we want to choose the number of options and the strike price to have nK...

 

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Now, we want to choose the number of options and the strike price to have nK = M, in addition to the budget constraint. When nK = M, the payoff of the option-based insurance strategy simplifies to WT = M + n|ST - K]* = max[M, nST], that is the maximum between the minimum wealth and the value of n shares of the underlying asset. What should be the strike price of an option in this case? Hint: You can rewrite the budget constraint in the form Wo Mbor + Co, where C is the price of a call written on a modified underlying asset with a strike price different from K. Then, solve this equation for K by calling the function fsolve again. $92.48 $109.11 $117.76 $143.81 Now, we want to choose the number of options and the strike price to have nK = M, in addition to the budget constraint. When nK = M, the payoff of the option-based insurance strategy simplifies to WT = M + n|ST - K]* = max[M, nST], that is the maximum between the minimum wealth and the value of n shares of the underlying asset. What should be the strike price of an option in this case? Hint: You can rewrite the budget constraint in the form Wo Mbor + Co, where C is the price of a call written on a modified underlying asset with a strike price different from K. Then, solve this equation for K by calling the function fsolve again. $92.48 $109.11 $117.76 $143.81

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ANSWER To find the strike price of an option in this case we need to rewrite the budget constraint i... View the full answer