European calls, puts value with strike and expiration value
Explain the relationship between the European calls, puts value with similar strike and expiration value.
Expert
C − P = S − Ke−r(T−t)
This relationship, in among European calls (value C) and puts (value P) with similar strike (K) and expiration (T) valued at time t is an effect of a simple arbitrage argument. When you buy a call option, at similar time write a put and sell stock short. When the stock is above the strike at expiration therefore you will have S − K by the call, 0 by the put and −S by the stock. A total sum of −K. If the stock is below the strike at expiration you will have 0 from the call, −S again from the stock, and −(K − S) from the short put. Again a total sum of −K. Therefore, whatever the stock price is at expiration such portfolio will all the times be worth −K, a guaranteed amount. Because this amount is guaranteed we can discount this back to the present. We should have C − P − S =−Ke−r(T−t).
This is put–call parity.
Illustrates an example of Efficient-market hypothesis?
Normal 0 false false
Which factors are important when implementing a Monte Carlo Method?
What are the characteristics of calibration?
Define the term correct delta with an example?
Who introduced equity option formula for pricing interest rate options?
Who proposed a scientific foundation for Brownian motion?
Describe the basic operation of a currency forward market The forward market is an OTC market in which the forward contract for purchase or sale of foreign currency is tailor-made among the client and its international bank. No money changes ha
What are Uses of Wiener Process/Brownian Motion in Finance? Answer: This is the most common stochastic building block for random walks within finance.<
18,76,764
1949576 Asked
3,689
Active Tutors
1425652
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!