Current stock price for XYZ Interest rate Dividend rate Option PUT PUT PUT PUT CALL CALL CALL CALL Strike $30 $40 $50 $50.75 $50 $50.75 $55 $60 Expiration 6-months 6-months 6-months 6-months 6-months 6-months 6-months 6-months $50 3% 0% Option price $0.14 $0.77 $2.74 $2.97 $3.48 $2.97 $1.20 $0.15 Implied Vol 40% 32% 22% 21% 22% 21% 19% 15% Delta (AOption/ AS) -0.023 -0.123 -0.431 -0.470 0.569 0.530 0.299 0.065 a) Recall the general formula (in terms of S(t), r, q, t, T) for the forward price of a stock for delivery date T: [Forward price for delivery date T] = S(t) * exp ((r — q) (T − t)) In this example, is the forward price for delivery in 6 months higher or lower than the current price of $50? b) The put-call parity relationship: [Price of K STRIKE CALL (Expiry T)] - [Price of K Strike PUT (Expiry T)] = [Value of Forward contact with invoice price K (Delivery date T)] Looking at the table. At what strike do the put and the call have the same value? Is this consistent with put-call parity?

Current stock price for XYZ Interest rate Dividend rate Option PUT PUT PUT PUT CALL CALL CALL CALL Strike $30 $40 $50 $50.75 $50 $50.75 $55 $60 Expiration 6-months 6-months 6-months 6-months 6-months 6-months 6-months 6-months $50 3% 0% Option price $0.14 $0.77 $2.74 $2.97 $3.48 $2.97 $1.20 $0.15 Implied Vol 40% 32% 22% 21% 22% 21% 19% 15% Delta (AOption/ AS) -0.023 -0.123 -0.431 -0.470 0.569 0.530 0.299 0.065 a) Recall the general formula (in terms of S(t), r, q, t, T) for the forward price of a stock for delivery date T: [Forward price for delivery date T] = S(t) * exp ((r — q) (T − t)) In this example, is the forward price for delivery in 6 months higher or lower than the current price of $50? b) The put-call parity relationship: [Price of K STRIKE CALL (Expiry T)] - [Price of K Strike PUT (Expiry T)] = [Value of Forward contact with invoice price K (Delivery date T)] Looking at the table. At what strike do the put and the call have the same value? Is this consistent with put-call parity?

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter18: Derivatives And Risk Management

Section18.A: Valuation Of Put Options

Problem 1P

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