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options on an asset are traded on the exchange with intervals of 25 cents for the strike price. Suppose we are building a replicating portfolio consisting of call options and/or put options (and no other assets) to approximate the payoffs of a digital call option with K = 100 and maturity T. That is, the replicating portfolio needs to have a payoff of 0 when ST < 100 and a payoff of 1 when ST ≥ 100.25. Current option prices for maturity T are as follows: Strike Call option price Put option price What is the current value of the replicating portfolio for the digital call option? Do not 99.75 2.66 100 100.25 5.92 2.59 6.07 2.47 6.24 options on an asset are traded on the exchange with intervals of 25 cents for the strike price. Suppose we are building a replicating portfolio consisting of call options and/or put options (and no other assets) to approximate the payoffs of a digital call option with K = 100 and maturity T. That is, the replicating portfolio needs to have a payoff of 0 when ST < 100 and a payoff of 1 when ST ≥ 100.25. Current option prices for maturity T are as follows: Strike Call option price Put option price What is the current value of the replicating portfolio for the digital call option? Do not 99.75 2.66 100 100.25 5.92 2.59 6.07 2.47 6.24
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Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
Posted Date:
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