Thread: 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.