710 Lower bound for European Put prices NO Dividends) Consider the following positions t=0 S<X ST>X Portfolio c Buy Put Ⅹ-S Buy Stock Net flows Portfolio d 0SSX Lend xe-rt at r Xe C is worth more than d, so it must cost more to set it up initially. So, p+So>Xe-rT p>maxkXe-r-So, 0] Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal UniversityOptions, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 7.10 Lower Bound for European Put Prices (NO Dividends) • Consider the following positions t = 0 ST <X ST >X Portfolio C Buy Put -p X - ST 0 Buy Stock -S0 ST ST Net Flows -p-S0 X ST Portfolio D Lend Xe-rT at r -Xe-rT X X • C is worth more than D, so it must cost more to set it up initially. So, p+S0 > Xe-rT p > max[Xe-rT - S0 , 0]