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What is the fair price of this financial product

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Reference no: EM132972893

Question - Consider a financial product with maturity in one year and the payoff linked to the performance of the S&P 500 index. The payoff at the final date is given by $1000+max($IT-$4000,0), where IT is the level of S&P 500. Current level of the index is I0=3900, and 1-year call and put options on S&P 500 with the strike price $4000 are traded at C0=$200 and P0=$100, respectively. What is the fair price of this financial product?

Reference no: EM132972893

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