1) According to the put-call parity, the following condition must be met for the
ID: 2655013 • Letter: 1
Question
1) According to the put-call parity, the following condition must be met for the call price to be equal to the put price, when all the option factors are the same:
A) Both call and put must be American style option
Both options must meet the lower-bound and upper-bound conditions
C) Exercise price should be equal to forward price
D) Put-call parity means put price and call price are the same
A) Both call and put must be American style option
B)Both options must meet the lower-bound and upper-bound conditions
C) Exercise price should be equal to forward price
D) Put-call parity means put price and call price are the same
Explanation / Answer
Answer is C. This is because as per put-call parity equation:
c + Ke^(-rT) = p + So
Where,
c = call price
K = stirke price or the exercise price
r = risk-free rate
T = time to expiration
So = Spot price
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