An asset's value is comparable to a short forward contract on the asset plus a long position in a European call option with a strike price equal to the forward price.a.a short call option positionb.a long call option positionc.a long put option positiond.a short put option position
Question
An asset's value is comparable to a short forward contract on the asset plus a long position in a European call option with a strike price equal to the forward price.a.a short call option positionb.a long call option positionc.a long put option positiond.a short put option position
Solution
The correct answer is b. a long call option position.
Here's why:
A forward contract is an agreement to buy or sell an asset at a certain future date for a certain price. If you have a short position in a forward contract, you have agreed to sell the asset in the future at the agreed upon price.
A European call option gives the holder the right, but not the obligation, to buy an asset at a specified price (the strike price) on a specified date. If you have a long position in a call option, you have the right to buy the asset.
So, if you have a short forward contract (you're agreeing to sell) and a long call option (you have the right to buy), you essentially have the right to buy the asset and then sell it, which is comparable to the asset's value. This is why the correct answer is a long call option position.
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