Suppose continuous arithmetic averaging of the asset price is taken from t = 0 to T, T

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Suppose continuous arithmetic averaging of the asset price is taken from t = 0 to T, T is the expiration time. The terminal payoff function of the floating strike call and put options are, respectively,

T T max (ST - 7 Su du, 0) and max (7 * Su du - Sr.0). T T

Show that the put-call parity relation for the above pair of European floating strike options is given by

C-P = Se-9(T-1) where + S (r = q) T At -r(T1) eq(T1)] er(T-1) At, - - = = = [ 5 T Su du.

Suppose continuous geometric averaging of the asset price is taken, show that the corresponding put-call parity relation is given by

where c- p = Se-9(T-1) - Gt/T S(T-1)/T expl o(T-1) (r-q- 9 - $ ) (T 1) - r(T-1)). + 672 2T

Gt= exp(- [' in S, du). S In Su 0

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Related Book For answer-question

Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Dec 05, 2023 01:13 AM

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Suppose continuous arithmetic averaging of the asset price is taken from t = 0 to T, T

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T T max (ST - ² Su du, 0) and max (7" Su du - Sr.0). T T ܘܢ

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To derive the putcall parity relation for European floating strike options lets consider the continu...View the full answer

Mathematical Models Of Financial Derivative

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