Explain put–call parity is a model-independent relationship
Illustrates that the put–call parity is a model-independent relationship.
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Calls and puts with similar strike and expiration should have similar implied volatility. The attractiveness of put–call parity is that this is a model-independent relationship. In order to value a call on its own we require a model for the stock price, within particular its volatility. Very similar is true for valuing a put. Expect to value a portfolio having a long call and a short put, it may vice versa, no model is required. This model-independent relationship is few and far between in finance.
Explain the term IGARCH as of the GARCH’s family. Answer: IGARCH: It is an integrated G
Assume that the treasurer of IBM contains an extra cash reserve of $1,000,000 to invest for six months. The six-month interest rate is 8% per annum in the U.S. and 6% per annum in Germany. Now, the spot exchange rate is DM1.60 per dollar and the six-month forw
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