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Math Help - Finance Proof

  1. #1
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    May 2009
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    Finance Proof

    Hi,

    I need to solve an equation for Reset options for an assignment. Here is a brief description of the problem. Any help on this would greatly appreciated.

    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

    Prove that CR(S) >= C(S) and PR(S) >= P(S), for all values of S.

    Basically need to prove that Max{St-min(Sr,K),0}>= {Max(St-k),0} for all values of S.

    Any help on this or a reference to somewhere where I could find a way to solve this would be very much appreciated.

    Cheers.
    Simon.
    Last edited by dwightschrute; May 29th 2009 at 06:28 AM. Reason: topic incorrect
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