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May 11th, 2011, 10:05 PM   #1
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Can someone please help me solve this question?

Hi everyone

This is my first time in these forums and was wondering if anyone could help me with this question?
I enrolled in some finance subjects, and this subject happens to be heavily mathematical, and I am having quite some problems.

I am required to derive a proof on reset strike options.

CR(S) = Price of Reset Call Option with inital stock price St and reset price Sr. Payoff = Max{St-min(Sr,K),0}

PR(S) = Price of Reset Put Option with inital stock price St and reset price Sr. Payoff = Max{max(Sr,K)-St,0}

C(S) = Price of Vanilla Call Option with inital stock price St

P(S) = Price of Vanilla Put Option with inital stock price St

a) Prove that CR(S) >= C(S) and PR(S) >= P(S), for all values S.
b) For what values of r do the inequalities above become equalities?

I have been struggling with this for quite some time and any help would be greatly appreciated.

Thanks in advance!
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May 11th, 2011, 10:08 PM   #2
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Re: Can someone please help me solve this question?

Hello and welcome!

I moved this to "Mathematics and Economics" as you will more likely get an response to this here.
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May 11th, 2011, 10:24 PM   #3
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Re: Can someone please help me solve this question?

Woops
Thanks for moving it to the correct section, Mark.
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