(c) A stock with spot price S is expected to pay a dividend of D in...
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(c) A stock with spot price S is expected to pay a dividend of D in t years. European call and put options on the stock with exercise price X and maturity T > tare trading at prices c and p, respectively. The continuously compounded risk-free rate is r. i. Show that the following put-call parity relationship holds: c+Xe-rT +De-rt =p+s (6 marks) The stock price is $20. A 3-month at-the-money European put on the stock trades at $0.75. The corresponding call trades at $1. The continuously compounded risk-free rate is 10%. Do these prices imply the existence of an arbitrage opportunity? Explain. (5 marks) (c) A stock with spot price S is expected to pay a dividend of D in t years. European call and put options on the stock with exercise price X and maturity T > tare trading at prices c and p, respectively. The continuously compounded risk-free rate is r. i. Show that the following put-call parity relationship holds: c+Xe-rT +De-rt =p+s (6 marks) The stock price is $20. A 3-month at-the-money European put on the stock trades at $0.75. The corresponding call trades at $1. The continuously compounded risk-free rate is 10%. Do these prices imply the existence of an arbitrage opportunity? Explain. (5 marks)
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i PutCall Parity Relationship We can prove the putcall parity relationship using the concept of synthetic options Heres how 1 Construct a synthetic sh... View the full answer
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