Call Option S=100 K=100 Payoff=1 (option is not available) How can i replicate this (payoff) with calls and puts with strike prices with multiples of 5$
Thanks for help
A digital call option (cash-or-nothing) can be replicated with two call options with different maturity. When we make the delta infinitely small and assume we have arbitrary strike prices. We get:
use a vertical spread and delta hedge it.