Problem

12. Explain the difference between the payoff and price of an option. Write down the payof...

12. Explain the difference between the payoff and price of an option. Write down the payoff formula for a call option and for a put option. What is the difference between the "gross" and "net" payoffs of an option (as widely applied in common usage)? Which concept do you think is the more useful one for valuing an option? Why?

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Solutions For Problems in Chapter 7