A put with 1-year to maturity is written on a stock. The current underlying stock price is $20. The option’s exercise price is $18, the interest rate is 3.74%, and the stock’s volatility is 32.7%. The price of a call written on the same stock with the same exercise price and time to maturity is $4.3. Use BSM pricing to determine if put-call parity holds.
A put with 1-year to maturity is written on a stock. The current underlying stock price is $20. The option’s exercise price is $18, the interest rate is 3.74%, and the stock’s volatility is 32.7%. The price of a call written on the same stock with the same exercise price and time to maturity is $4.3. Use BSM pricing to determine if put-call parity holds.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A put with 1-year to maturity is written on a stock. The current underlying stock price is $20. The option’s exercise price is $18, the interest rate is 3.74%, and the stock’s volatility is 32.7%. The price of a call written on the same stock with the same exercise price and time to maturity is $4.3. Use BSM pricing to determine if put-call parity holds.
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