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Results tagged with price
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user 15336
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Accepted
Quick way to extrapolate call price as function of strike
Let's start by assuming the risk-free rate is 0 (this isn't a problem, but the math is clearer without it), so we don't have to discount the price. … Then, the call price is given by $C(K) = E_t[(S_T - K)^+]$, which gives:
\begin{array}
$C(K - 10) &= E_t[max(S_T - (K - 10), 0)] \\
&= E_t[max(S_T - K + 10, 0)] \\
&\leq E_t[max(S_T - K, 0) + 10] = E_t …
- 520