Trade european call and put options on stock

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Reference no: EM131359003

Suppose you can trade European call and put options on a stock with a current price of S at maturities and strike prices of your choice. However, due to your portfolio risk management you want to take a forward positionmaturing at time T on this stock.

a) How can you replicate the forward contract with call and put options?

b) What should the no-arbitrage value of the replicating portfolio be at the time you initially formit?

c) What should the strike prices of these options be? Verify that there are no arbitrage opportunities with the options you chose.

Reference no: EM131359003

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