Payoff of purchasing an european stock put option

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Reference no: EM13944470

Suppose the current price is $50 per share. The stock price might go up to $80 per share or go down to $20 per share.

a. Can you derive the payoff of purchasing an European stock PUT option with exercise price $50 for one share?

b. Come up with a risk free portfolio that consists of the stock and the PUT option?

c. Based on the risk free portfolio, derive the no arbitrage premium for the European stock PUT option?

Reference no: EM13944470

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