Hi,
Just a question one part of acted solution (vi)+(vii). I can follow everything just one question on the constraining value of 10,076 (value of investors portfolio at t=0).
I'm wondering why we are constrained to the portfolio value of 10,076 at time 0. Is it because we are assuming the investor has no additional cash to buy more options or shares once the portfolio is setup? So they can only sell or buy the shares, options they already have? Foer example if we weren't constrained to 10,076 we could buy loads of more puts on top of what we have (without selling calls) to reduce the probability of shortfall when shares price is low, but this would require external cash if we were not selling any calls. Where in the question is the clue for this constraint or am I missing some fundamental theory?
Thanks,
Darragh
Last edited: Apr 19, 2022