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Math Help - Need help with financial maths

  1. #1
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    Need help with financial maths

    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 particular subject happens to be heavily mathematical, and I am having quite some problems, as I do not have a maths background...

    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

    S is stock price
    K is strike price
    t is option maturity
    r is strike reset date

    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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  2. #2
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  3. #3
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    Thanks for the link.

    But I should have been more clear.
    The last time I did any maths was over 10 years ago, and such questions are baffling to me.

    I'm not asking for a solution, but rather, was hoping that someone could guide me in solving this. Give me ideas on where I should start or something that will help me get started...
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  4. #4
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    Re: Need help with financial maths

    Quote Originally Posted by mungbean View Post
    Thanks for the link.
    I'm not asking for a solution, but rather, was hoping that someone could guide me in solving this. Give me ideas on where I should start or something that will help me get started...
    If you are still working on this problem search for the subject using Google and find an excel document that calculates it. View the Visual Basic code and use that as a guide.

    An option like this is just a combination of simpler options. A reset is fairly useless in the field, but you will likely find something posted by an academic online (with maybe a 20 minute search). Goodluck!
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