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Black Scholes - Practice Quenstions

B

Bernadette Pieterse

Active Member
Hello,

For the black scholes chapter, there is a lot question where the payoff is
S1 - 35 if 35<=S1<=45
10. if 45<=S1<=55
65 - S1 if 55<=S1<=65
0. Otherwise
The payoff is written in terms of two long and two short call options.

What is the best way to tackle these questions to write the payoff ito options? I struggle to see the what options to use.

Many thanks in advance.
 
You can do everything with calls from the left or puts from the right - check out the attached, see if it helps
 

Attachments

  • CM2 position diagram tips.pdf
    91.9 KB · Views: 5
I'd made a mistake in the "CM2 position diagram tips" pdf with the underlying slope for "Puts from the right" - now corrected
 
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