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.
Which factors are important when implementing a Monte Carlo Method?
Normal 0 false false
Can I get the answers for straight supply?
Presently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The interest rate of three month is equal to 8.0% per annum in the U.S. & 5.8% per annum in the U.K. One can borrow as much as $1,500,000 o
What is forward equation?
Explain the term forward volatility.
Determine the efficiency of finite differences?
What is Crash Metrics?
Why is actual volatility not easy to measure?
Explain the terms: diversifiable and non-diversifiable risk. Which one is more important to financial managers in business firms?
18,76,764
1945147 Asked
3,689
Active Tutors
1433424
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!