call on the expiry date will be zero for all stock prices below INR 2,400 and the value will increase by INR
1 for each INR 1 increase in the stock price beyond INR 2,400.
e value of the risk-free investment will be S
X
× exp(–rt) × exp(rt) = S
X
, or the exercise price.
e cash ows associated with this strategy are shown in Table 14.2.
Table 14.2 shows that the risk-free security provides a minimum portfolio value of INR 2,400 or
provides an insurance against the unfavo ...
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