MediumOptions & Greeks

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.