Suppose you are allowed to trade the following financial instruments (assume that each option contract...
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Finance
Suppose you are allowed to trade the following financial instruments (assume that each option contract covers one share of stock A, e.g., a call option allows you to buy one share of A at the strike price if you want):
1 Stock A which is traded at $100 now 2 The 1-year to maturity European call option on stock A with a strike price of $80; 3 The 1-year to maturity European put option on stock A with a strike price of $80; 4 The 1-year to maturity European call option on stock A with a strike price of $100; 5 The 1-year to maturity European put option on stock A with a strike price of $100; 6 The 1-year to maturity European call option on stock A with a strike price of $120; 7 The 1-year to maturity European put option on stock A with a strike price of $120; 8 The 1-year zero-coupon bond with a YTM of 5%;
What is the payoff of Joshua's portfolio above if the price of stock A drops to 90 on maturity?
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