replicating exotic options

[magicbug]

Ahh you guys have been very helpful so i am here again with another question.

i am reading all the example for replicating exotic options but am very confused by them. The examples i have are: 1) example in Hull's book Ch22 last section 2) JAM practice #2 and 3) 2006 #16.

I will use JAM pracitce #2 as axample


Q1) Why use option F to start with, I thought we should all buy options at index=1500 level

Q2) I agree to use Option I/H/G for following steps but why the price is price from option C/B/A?

For example in Hull's book, I am even more confused:As summarized by JAM, (pg 60 of Setion 1) Options used (A/B/C/D) seems to be fine: all with same stock price, but to get the initial value 6.99 is used, which is not A, why?

For 2006 #16, even more lost? could someone walk me thru it?

I am so desperate......:swear::swear:

[carzymathematician]

For example in Hull's book, I am even more confused:As summarized by JAM, (pg 60 of Setion 1) Options used (A/B/C/D) seems to be fine: all with same stock price, but to get the initial value 6.99 is used, which is not A, why?

For 2006 #16, even more lost? could someone walk me thru it?

I am so desperate......:swear::swear:

There's a good post here that should help with the Hull ex.

http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=101205&page=2