MediumOptions & GreeksAcceptance 69%
Value of a Box Spread
OptiverCitadel Securities
A box spread is built from European options with strikes 90 and 110 expiring in 1 year. With a continuously-compounded risk-free rate of 5%, what is its arbitrage-free value today (in dollars)?
Approach
What does a box pay at expiry, regardless of where the stock lands?
Discount a certain cash flow at the risk-free rate.
Answer
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The answer is 19.02. Sign in free for the full worked solution and to check your own answer.
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