Max profit of collar = ST + max(0, X1 – ST) – max(0, ST – X2) – S0 – (p0 – c0)?

krone · April 30, 2017, 5:12pm

hi fellows

Max profit of a collar = S_T + max(0, X₁ – S_T) – max(0, S_T – X₂) – S₀– (p₀ – c₀)? or just

S_T + max(0, X₁ – S_T) – max(0, S_T – X₂) – S₀

kevinsfl · April 30, 2017, 5:37pm

Because CFAI taught us that the collar in question is a “zero-collar” we should use your 2nd formula.

In reality, not all collars are zero-collar, so the 1st formula would be the most correct.

Cheers

kevinsfl · April 30, 2017, 5:38pm

In zero-collar, p0=c0, therefore p0-c0=0, which means mathematically 1st formula = 2nd formula

krone · April 30, 2017, 6:17pm

thx a lot!

kevinsfl · April 30, 2017, 6:19pm

u r welcome

krokodilizm · April 30, 2017, 6:36pm

According to my notes the maximum profit of a collar is X₂-S₀

Gurifissu · April 30, 2017, 10:25pm

Correct Kroko - OP just wanted to know about the profit formula, not the max profit.