1. Find C₅₀ and P₅₀, the theoretical values of 50 call and 50 put. Now compare your results with the results that follow from Put-Call Parity. Comment on the results.

2. Find the call and put delta by using the formulas and compare the results using Put-Call Parity and calculus. Any comments?

The Black-Scholes-Merton formula for evaluating European options (no early exercise) on non-dividend paying stock is:

Where d₁ =        And

X          =          the stock price

E          =          the strike price or exercise price

r           =          Risk free interest rate per annum.

            =          Volatility per annum

T-t       =          Number of years to expiration.

N(d₁)  = the area to the left of d₁ under the Standard Normal Curve

If X = 50 and r = 0.05 and σ = 0.50 and there are 182 days to expiration then

Answer rating: 100% (QA)

1 d1 ln50 005 052218205sqrt182 134 Nd1 0906 C50 50Nd1 50e005182Nd105sqrt182 4533 P50 50e005182Nd105s... View the full answer