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Use (European) options, how to replicate (the payoff of) a short position in a forward contract...

Use (European) options, how to replicate (the payoff of) a short position in a forward contract with delivery price K?

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Expert Solution

To replicate the payoff of a short position in a forward contract, buy a European Put option and sell a European Call option with the strike price equal to the delivery price.

Let the strike price K be $50. The payoff diagram is drawn for various prices of the stock at expiry.

Screenshot with formulas

Can you please upvote? Thank You :-)

jeff jeffy answered 1 year ago
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