Let us say that a put and a call have the same maturity date and strike price. If both options have the same price, what will be the value of the stock?
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Let us say that a put and a call have the same maturity date and strike price. If both options have the same price, what will be the value of the stock?
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- What impact does each of the followingparameters have on the value of a call option?(1) Current stock priceIn the Black-Scholes option pricing model, the value of a call is inversely related to: a. the risk-free interest stock b. the volatility of the stock c. its time to expiration date d. its stock price e. its strike priceWe showed in the text that the value of a call option increases with the volatility of the stock. Is this also true of put option values? Use the put-call parity theorem as well as a numerical example to prove your answer.
- Analyze the value of a call option if the stock price is zero? What if the stock price is extremely high (relative to the strike price)?Both call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different. Use the following table to identify whether each statement describes put options or call options. Statement Put Option Call Option 1. An option is more valuable the longer the maturity. 2. A longer maturity in-the-money option on a risky stock is more valuable than the same shorter maturity option. 3. When the exercise price increases, option prices increase. 4. As the risk-free rate increases, the value of the option increases.According to the Black-Scholes formula, what will be the hedge ratio (delta) of a call option as the stock price becomes infinitely large? Explain briefly.
- If the stock price increases, the price of a put option on that stock ________ and that of a call option _________. decreases, increases decreases, decreases increases, decreases increases, increasesBoth call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different. Use the following table to identify whether each statement describes put options or call options. Statement Put Option Call Option 1. When the exercise price increases, option prices increase. 2. An option is more valuable the longer the maturity. 3. The effect of the time to maturity on the option prices is indeterminate. 4. As the risk-free rate increases, the value of the option increases.In a binomial tree created to value an option on a stock, what is the expected return on the option? O Zero O The return required by the market O The risk-free rate O It depends on the volatility AL
- Under which of the following circumstances would you want to buy a stock? Select one: a. The HPR is greater than zero. b. A stock's holding period return is greater than the CAPM return c. A stock's CAPM return is greater than its holding period return d. The stock's price is higher than its valueWhat is the value of a call option or a put option if the stock price is zero? What if the stock price is extremely high (relative to the strike price)?Consider a stock that pays no dividends on which a futures contract, a call option, and a put option trade. The maturity date for all three contracts is T, the exercise price of both the put and the call is X, and the futures price is F. Show that if X = F, then the call price equals the put price. Use parity conditions to guide your demonstration.
