Problem bank

Problem 202 of 333EasyFinanceP202

Calls and puts on a die

  1. A fair six-sided die will be rolled once. A call on the roll with strike 4 pays max⁡(X−4,0)\max(X - 4, 0) and a put with strike 4 pays max⁡(4−X,0)\max(4 - X, 0), where XX is the number shown. Ignoring interest, what are the fair prices of the call and the put? Check your answers against put-call parity.