Next: An option contract
Up: Two examples
Previous: Two examples
Referring to our game in section
, it is easy to see that the payout of the derivative (i.e. the offer) has
f(1)=sdown-k,
f(2)=sup-k and the price, p, of the offer itself is zero.14 The main question is to find the value of k.
If you substitute the value of f(1) and f(2) and p=0 in equation
, you will notice that
!
Birger Bergersen
1998-12-22