Firstly, I do not have a quant finance background. This is new to me, and I imagine that this is a basic question for this group. I am calculating the price of a binary/digital option with ...
How is holding an European call option equivalent to holding an asset-or-nothing call option and writing a cash-or-nothing call option?
The cash-or-nothing call option has a payoff that is equal to the strike price. All three options have the same expiry date.