I am required to sketch a payoff function, as follows:

http://i56.tinypic.com/2100lqg.jpg

I'm baffled. I've tried, a lot, but this confuses the heck outta me.

Any kind souls who could give me some pointers?

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- Mar 23rd 2011, 08:56 PMft_fanSketching a Payoff Function
I am required to sketch a payoff function, as follows:

http://i56.tinypic.com/2100lqg.jpg

I'm baffled. I've tried, a lot, but this confuses the heck outta me.

Any kind souls who could give me some pointers? - Mar 23rd 2011, 10:24 PMVolga
the X axis will be S_t variable axis, the Y axis is the payoff

plot two points on X axis: K_1, K_2 and consder tihe behaviour of S_t variable around these two points (before, in between, after)