The Value of a stock-plus-put position as on the ending date of the option. Introduction: Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows: Where C= Call premium P=Put premium X=Strike Price of Call and Put r=Annual interest rate t= Time in years S 0 = Initial price of underlying

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Answer 1

Question

Chapter 20, Problem 12PS

a

Summary Introduction

To compute:The Value of a stock-plus-put position as on the ending date of the option.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call

Parity equation is as follows:

Where C= Call premium

P=Put premium

X=Strike Price of Call and Put

r=Annual interest rate

t= Time in years

S₀= Initial price of underlying

b

Summary Introduction

To compute: The value of the portfolio as on the ending date of the option when portfolio includes a call option and zero-coupon bond with face value (X+D) and make sure its value equals the stock plus-put portfolio.

Introduction:

Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.

c.

Summary Introduction

To compute: The cost of establishing above said portfolios and derives the put-call parity relationship.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows:

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Consider a portfolio that consists of the following four derivatives: 1) a put option written(sold) with strike price K − 5, 2) a call option purchased with strike price K − 5, 3) a call option written(sold) with strike price K + 5, and 4) a put option purchased at strike price K + 5. All options are European.The risk-free rate is rf , the time to expiration is T, the initial stock price is S0, and the stock price atmaturity is ST . What are the payoffs at expiration of this portfolio? What must the price of this portfoliobe?

Show how you would make a portfolio delta-neutral and also self-financing by including bonds and call options to a stock that is currently traded at sh. 100, given that the delta for the call = 0.2499 and the call price = sh5.55.

Let C be the price of a call option that enables its holder to buy one share of a stock at an exercise price K at time t; also, let P be the price of a European put option that enables its holder to sale one share or the stock for the amount K at time t. Let S be the price of the stock at time 0. Then, assuming that interest is continuously discounted at a nominal rate r, either S+P-C=Ke-rt or there is an arbitrage opportunity. Question: How do I verify that the strategy of selling one share of stock, selling one put option, and buying one call option always results in a positive win if S+P-C>Ke-rt ?

Answer 2

Question

Chapter 20, Problem 12PS

a

Summary Introduction

To compute:The Value of a stock-plus-put position as on the ending date of the option.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call

Parity equation is as follows:

Where C= Call premium

P=Put premium

X=Strike Price of Call and Put

r=Annual interest rate

t= Time in years

S₀= Initial price of underlying

b

Summary Introduction

To compute: The value of the portfolio as on the ending date of the option when portfolio includes a call option and zero-coupon bond with face value (X+D) and make sure its value equals the stock plus-put portfolio.

Introduction:

Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.

c.

Summary Introduction

To compute: The cost of establishing above said portfolios and derives the put-call parity relationship.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows:

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Answer 3

Question

Chapter 20, Problem 12PS

a

Summary Introduction

To compute:The Value of a stock-plus-put position as on the ending date of the option.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call

Parity equation is as follows:

Where C= Call premium

P=Put premium

X=Strike Price of Call and Put

r=Annual interest rate

t= Time in years

S₀= Initial price of underlying

b

Summary Introduction

To compute: The value of the portfolio as on the ending date of the option when portfolio includes a call option and zero-coupon bond with face value (X+D) and make sure its value equals the stock plus-put portfolio.

Introduction:

Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.

c.

Summary Introduction

To compute: The cost of establishing above said portfolios and derives the put-call parity relationship.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows:

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Answer 4

Question

Chapter 20, Problem 12PS

a

Summary Introduction

To compute:The Value of a stock-plus-put position as on the ending date of the option.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call

Parity equation is as follows:

Where C= Call premium

P=Put premium

X=Strike Price of Call and Put

r=Annual interest rate

t= Time in years

S₀= Initial price of underlying

b

Summary Introduction

To compute: The value of the portfolio as on the ending date of the option when portfolio includes a call option and zero-coupon bond with face value (X+D) and make sure its value equals the stock plus-put portfolio.

Introduction:

Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.

c.

Summary Introduction

To compute: The cost of establishing above said portfolios and derives the put-call parity relationship.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows:

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Answer 5

Chapter 20, Problem 12PS

a

Summary Introduction

To compute:The Value of a stock-plus-put position as on the ending date of the option.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call

Parity equation is as follows:

Where C= Call premium

P=Put premium

X=Strike Price of Call and Put

r=Annual interest rate

t= Time in years

S₀= Initial price of underlying

b

Summary Introduction

To compute: The value of the portfolio as on the ending date of the option when portfolio includes a call option and zero-coupon bond with face value (X+D) and make sure its value equals the stock plus-put portfolio.

Introduction:

Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.

c.

Summary Introduction

To compute: The cost of establishing above said portfolios and derives the put-call parity relationship.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows:

Answer 6

Chapter 20, Problem 12PS

a

Summary Introduction

To compute:The Value of a stock-plus-put position as on the ending date of the option.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call

Parity equation is as follows:

Where C= Call premium

P=Put premium

X=Strike Price of Call and Put

r=Annual interest rate

t= Time in years

S₀= Initial price of underlying

Answer 7

Chapter 20, Problem 12PS

a

Summary Introduction

To compute:The Value of a stock-plus-put position as on the ending date of the option.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call

Parity equation is as follows:

Where C= Call premium

P=Put premium

X=Strike Price of Call and Put

r=Annual interest rate

t= Time in years

S₀= Initial price of underlying

Answer 8

b

Summary Introduction

To compute: The value of the portfolio as on the ending date of the option when portfolio includes a call option and zero-coupon bond with face value (X+D) and make sure its value equals the stock plus-put portfolio.

Introduction:

Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.

Answer 9

b

Summary Introduction

To compute: The value of the portfolio as on the ending date of the option when portfolio includes a call option and zero-coupon bond with face value (X+D) and make sure its value equals the stock plus-put portfolio.

Introduction:

Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.

Answer 10

c.

Summary Introduction

To compute: The cost of establishing above said portfolios and derives the put-call parity relationship.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows:

Answer 11

c.

Summary Introduction

To compute: The cost of establishing above said portfolios and derives the put-call parity relationship.

Introduction:

Put-Call parity relationship: It is a relationship defined among the amounts of European put options and European call options of the given same class. The condition implied here is that the underlying asset, strike price, and expiration dates are the same in both the options. The Put-Call Parity equation is as follows:

Answer 12

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Answer 13

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Answer 15

Ch. 20 - Prob. 1PS Ch. 20 - Prob. 2PS Ch. 20 - Prob. 3PS Ch. 20 - Prob. 4PS Ch. 20 - Prob. 5PS Ch. 20 - Prob. 6PS Ch. 20 - Prob. 7PS Ch. 20 - Prob. 8PS Ch. 20 - Prob. 9PS Ch. 20 - Prob. 10PS

Solution Summary: The author explains the Put-Call parity relationship between the amount of European put options and European call options of the same class.

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