t = time when you choose.
The payoff at time t for a chooser option is Max[C(t),P(t)].
Thus the premium for the chooser option is PresentValue(Max[C(t),P(t)]) = Max[C(0),P(0)]
The reasoning is flawed because that is not the premium in general. Max[C(0),P(0)] is only the premium if t = 0.
Why is this reasoning flawed?
PV[C(t)] = C(0)
PV[P(t)] = P(0)
Once again, it's is getting late and things are no longer making sense. It is time to sleep.
The payoff at time t for a chooser option is Max[C(t),P(t)].
Thus the premium for the chooser option is PresentValue(Max[C(t),P(t)]) = Max[C(0),P(0)]
The reasoning is flawed because that is not the premium in general. Max[C(0),P(0)] is only the premium if t = 0.
Why is this reasoning flawed?
PV[C(t)] = C(0)
PV[P(t)] = P(0)
Once again, it's is getting late and things are no longer making sense. It is time to sleep.
Derivation of the premium for a choose option
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