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  3. 6. the current price of a non-dividend paying stoc

6. The current price of a non-dividend paying stock is 40. The following table shows...

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Accounting

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6. The current price of a non-dividend paying stock is 40. The following table shows call and put option premiums for three-month European options of various exercise prices. A trader is considering an investment strategy, which is long one 40-strike call, short one 45-strike call, short one 40-strike put, and long one 45-strike put. Assume the contract size of the option is 100 shares. Call K=40 Call K=45 Put K=40 Put K=45 Premium 2.78 0.97 1.99 5.08 a) Please show the payoff and profit table and draw the diagram (payoff and profit) for this strategy. Assume St is the stock price in 3-month. (8 points) b) This strategy can be considered as a replicating portfolio of an asset. What is this asset? Please explain. (2 points)

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