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Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
350 Derivatives and Risk Management
Initial cash ow of this strategy
Buy a put and pay the put price = –P
Borrow the present value of the exercise price = S
X
× e
–rT
Buy the stock and pay the current stock price = –S
t
Initial investment = (S
X
× e
–rT
) – (P + S
t
)
e terminal value of this strategy can calculated as follows:
Terminal value = Terminal value of the bought put + Terminal value of the bought stock
– Repayment of the amount borrowed with interest
Terminal value of the bought put = Max [(S
X
S
T
), 0]
Terminal value of the bought stock = S
T
Repayment of the amount borrowed with interest = S
X
× e
–rT
× e
rT
= S
X
Terminal value of the portfolio = ...
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Publisher Resources

ISBN: 9781299447547Publisher Website