Draw the payoff diagrams at maturity for the following two portfolios: (i) A long call at strike
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Question:
Draw the payoff diagrams at maturity for the following two portfolios:
(i) A long call at strike K and a short put at strike K, both options have the same maturity
(ii) A long stock plus a borrowing of the present value of the strike K. The payoff of this portfolio is the cash-flow received at maturity from an unwinding of the positions in the portfolio.
Compare your two payoff diagrams and justify that this gives the call-put parity conditions
Related Book For
Business Math
ISBN: 978-0133011203
10th edition
Authors: Cheryl Cleaves, Margie Hobbs, Jeffrey Noble
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