Question: Please complete question 2, no specific numbers should be contained in the solution 1. (30 points) Show that for a European call option, we get

Please complete question 2, no specific numbers should be contained in

Please complete question 2, no specific numbers should be contained in the solution

1. (30 points) Show that for a European call option, we get the stronger result C ZS PV (X) Include a diagram to illustrate this. What does this tell us about the time value of a European call option? Remark: The result is the same for an American option, but we will discuss this next week. 2. (35 points) Suppose a trader writes a European put option with exercise price X. Lett be such that 0 st X, instead of S X, when the terminal stock price exceeds H. Construct a portfolio of European options with an identical payoff. Explain your reasoning. 1. (30 points) Show that for a European call option, we get the stronger result C ZS PV (X) Include a diagram to illustrate this. What does this tell us about the time value of a European call option? Remark: The result is the same for an American option, but we will discuss this next week. 2. (35 points) Suppose a trader writes a European put option with exercise price X. Lett be such that 0 st X, instead of S X, when the terminal stock price exceeds H. Construct a portfolio of European options with an identical payoff. Explain your reasoning

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