Tick all those statements on options that are correct (and don't tick those statements that are incorrect). O a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion. b. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion. O c. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ke where T is the expiry time. Od. In general the equation S(T) + (K — S(T))† = (S(T) – K)+ + K is valid. O e. An American put option should never be exercised before the expiry time.
Tick all those statements on options that are correct (and don't tick those statements that are incorrect). O a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion. b. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion. O c. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ke where T is the expiry time. Od. In general the equation S(T) + (K — S(T))† = (S(T) – K)+ + K is valid. O e. An American put option should never be exercised before the expiry time.
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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Transcribed Image Text:Tick all those statements on options that are correct (and don't tick those statements that are incorrect).
O a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion.
Ob. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion.
0 C. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ke where I is the expiry time.
Od. In general the equation S(T) + (K − S(T))+ (S(T) — K)† + K is valid.
An American put option should never be exercised before the expiry time.
e.
=
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