Call option replicate digital option
Please help improve this article by adding citations to reliable sources. Orphaned articles from May All orphaned articles Articles needing additional references from September All articles needing additional references Articles with multiple maintenance issues All stub articles. I was asked how to price a digital option call option replicate digital option a job interview - and had no idea what to do! Many complicated payoffs can be re-created as combinations of vanilla puts and calls.
You can help Wikipedia by expanding it. Please help improve it or discuss these issues on the talk page. As a starting point, consider buying a call with and selling a call with: You earn from selling the calls, and pay for the calls.
You earn from selling the calls, and pay for the calls. Suppose you have a model for pricing regular call options. The net cost is: A call is only worth exercising using if the underlying price,is greater than atas the payoff from exercising is. Conclusion Many complicated payoffs can call option replicate digital option re-created as combinations of vanilla puts and calls.
Retrieved from " https: Many complicated payoffs can be re-created as combinations of vanilla puts and calls. How can you use to price the digital option? Views Read Edit View history. This article has multiple issues.
It might look more familiar if I re-wrote it call option replicate digital option Please introduce links to this page from related articles ; try the Find link tool for suggestions. Please help improve it or discuss these issues on the talk page. At maturity, the payoff is 1 if the spot price of the underlying asset is between two numbers, the lower and upper strikes of the option; otherwise, it is 0. Generalizing this idea - consider a number.