Question: Question on option pricing. Have attached all information below. Question 3: Option Pricing and Option Strategy (10 marks) a) You are attempting to formulate an

Question on option pricing. Have attached all information below.

Question 3: Option Pricing and Option Strategy (10 marks) a) You are attempting to formulate an investment strategy. In particular, you short a put option with strike price X1 equals to $95, and you long another put option with strike price X2 equals to $115. Both put options have the same underlying stock and will expire at time T. (4.5 marks) PIs plot the payoff structure of this investment strategy as a function of ST, which stands for the price of underlying stock at maturity. The X-axis is ST, and Y-axis is the total payoff. [Hint: you can first calculate the total payoff in three scenarios: ST 115.]

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