For Each of the Following Option and Securities Combinations Show

question 26

Essay

For each of the following option and securities combinations show what the payoff would be when the option expires.Assume that each option has the same exercise price and expiration date.
a.Buy a call and invest the present value of the exercise price in a bank deposit.
b.Buy a share and a put option on the share.
c.Buy a share, buy a put option on the share, and sell a call option on the share.
d.Buy a call option and a put option on the share.
Consider options with exercise price of $100.Call the stock price at the expiration date S.

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Definitions:

Stimulus Generalization

The psychological phenomenon where a response learned for one stimulus is involuntarily elicited by similar stimuli.

Higher-Order Conditioning

A form of learning in which a stimulus is paired with a previously conditioned stimulus, creating the same conditioned response without directly being paired with the unconditioned stimulus.

Response Renewal

The reemergence of a previously extinguished response following a change in context.

Extinction

In psychology, the process by which a conditioned response diminishes and disappears following repeated exposure without reinforcement.