4. (20 Points) = - (a) Why is a straddle with strike K F exactly...
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4. (20 Points) = - (a) Why is a straddle with strike K F exactly twice as expensive as a put with strike K = F? (b) For this part, you should work in the Black-Scholes framework. Fix some S, r, o, T. Suppose you wanted to buy a straddle with zero delta. i. What strike, K, should you choose for the underlying call and put? ii. Having chosen this strike, which is more expensive: the put with strike K or the call with strike K? 4. (20 Points) = - (a) Why is a straddle with strike K F exactly twice as expensive as a put with strike K = F? (b) For this part, you should work in the Black-Scholes framework. Fix some S, r, o, T. Suppose you wanted to buy a straddle with zero delta. i. What strike, K, should you choose for the underlying call and put? ii. Having chosen this strike, which is more expensive: the put with strike K or the call with strike K
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