replicate a binary option with calls and puts
Anonymous
You can do it dynamically with combination of the riskless asset and the underlying asset (or you can use the call instead if you wish) to get your black-scholes pde ... or if you combine a call with strike=K and short a call with strike = K+1, you wil get something close. Buying and shorting infinity of these gets you the exact payout but this doesn't really make sense...
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