An Option on the Next Roll

A fair six-sided die will be rolled once, and the "settlement price" of the underlying is the number that comes up. Ignore interest rates and assume the true distribution is also the pricing distribution. What is the fair value of a call struck at 4? A put struck at 4? The straddle? Verify that put-call parity holds, and say what the at-the-forward straddle is worth.

Answer

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