Question

In this problem we consider whether parity is violated by any of the option prices in Table 9.1. Suppose that you buy at the ask and sell at the bid, and that your continuously compounded lending rate is 0.3% and your borrowing rate is 0.4%. Ignore transaction costs on the stock, for which the price is $168.89. Assume that IBM is expected to pay a $0.75 dividend on August 8, 2011. Options expire on the third Friday of the expiration month. For each strike and expiration, what is the cost if you:
a. Buy the call, sell the put, short the stock, and lend the present value of the strike price plus dividend (where appropriate)?
b. Sell the call, buy the put, buy the stock, and borrow the present value of the strike price plus dividend (where appropriate)?


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  • CreatedAugust 12, 2015
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