Questions tagged [put-call-parity]
The put-call-parity tag has no usage guidance.
88
questions
0
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0answers
37 views
How to combine compound calls and puts such as to have a guaranteed fixed payoff at expiration?
Let there be 2 European vanilla options:
Call;
Put;
Both options expire at time T2 > T1 > t=0.
We also have 4 additional options available to us:
Compound call on call;
Compound call on put;
...
2
votes
1answer
174 views
Put-call parity on SPY
I'm currently trying to model the IV curve for calls and puts on SPY using the Black-Scholes model with dividends. I'm able to calibrate the risk-free rate and dividends so that both ATM IVs match, ...
3
votes
0answers
66 views
Model independent (or reasonable assumption) bounds on OTM put price given an ATM call price
I am looking for model independent (or weak/reasonable assumption) bounds on price of a OTM vanilla put on strike $k1$, conditional on an observable price for a ATM call at some strike $k2$. I ...
-1
votes
1answer
73 views
Why does bull call spread shows higher payoff than bull put spread?
I am trying to compare bull call spread and bull put spread for equity index option. For the options where the put call parity holds, I am getting a different payoff for bull call spread and bull put ...
0
votes
1answer
103 views
Maximum value of a call option proof [closed]
I'm reading Sinclair's Option Pricing and am confused by the proof for the maximum value of a call. It makes sense logically that a call can't be worth more than the underlying, and so:
c <= S
The ...
0
votes
0answers
160 views
Forward Index Level in VIX calculation
The VIX white paper (https://cdn.cboe.com/resources/vix/vixwhite.pdf) step #1 (page 6) says the the Forward Index Price is calculated as:
F = Strike Price + e^RT x (Call Price - Put Price).
Why doesn'...
0
votes
0answers
118 views
VIX options underlying: Can I safely use Put-Call parity instead of VIX futures
Couple of basic questions:
1- I'd like to calculate the implied of VIX options intraday, without access to intraday VIX futures.
In the absence of VIX futures as underlyings, what would be the ...
0
votes
0answers
199 views
calculating risk free interest rate from put call parity
I'm trying to calculate the interest rate $r$ from the put-call parity.
As per hull, put-call parity is given by the below equation.
$c + Ke^{-rT} = p + S_{0}$
where:
$c$ = current call option price ...
1
vote
2answers
751 views
How to prove no-arbitrage when a long butterfly is strictly positive?
I want to prove why there are no arbitrage opportunities when a long butterfly is strictly positive. I know there is a similar topic out there, but it seems it doesn't solve my question: Prove that ...
1
vote
0answers
44 views
How do borrow rates in single-stock options affect their prices
Would following approach be suitable:
First calculate European option price (does it even make sense to do so, if we are talking about less than 30 dte?), take the diff between European and American ...
0
votes
1answer
234 views
Put-Call Parity with dividends
In which book will I find the exact proof of put-call parity in the case when asset pays continuous dividend? I need a book to cite this result
1
vote
0answers
141 views
How to Show an Arbitrage Opportunity Exist From a Market-Linked CD?
A bank issues a market-linked CD that guarantees the original principal with an interest at an effective annual rate of 2%, plus 70% of the percentage gain on the ABC Inc. non-dividend-paying stock ...
1
vote
0answers
56 views
Put-call parity under a regime-switching model
I need some help.
I'm given $J$ different regimes, each one characterized by its own parameters $(r_i, \delta_i,\sigma_i,...)$ with $i\in \mathcal{J}= \{1,2,...,J\}$ ($r$ = risk-free interest rate, $...
5
votes
1answer
348 views
Intuitive explanation of put option pricing based on put-call parity
Assuming no dividends, the put-call parity equation says:
$c + \mathrm{Ke}^\mathrm{-rT} = p + S$
where $c$ is the price of the European call, $p$ is the price of the European put, $S$ is the current ...
2
votes
1answer
367 views
Under Put-Call Parity, why do we add the cost of carry to Call prices but subtract them from the Stock price and Put prices?
In Natenberg (1994) Chapter 11 he outlines the Put-Call parity relationships.
...
0
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0answers
43 views
The wider bid-ask spread of in-the-forward American option
Why is the bid-ask spread of a in-the-forward/money American call (put) much larger than the out-of-the-forward/money American put (call)? I suppose the answer to the same corresponding question ...
0
votes
0answers
68 views
Black-Scholes pricing of european call option
I am really confused on the usage of the greeks and the Black-Scholes model for option pricing. To gain some more understanding I am attempting to see if I can price a european call option under the ...
1
vote
3answers
82 views
Equivalent combination of puts
Suppose that a certain stock is currently worth $S_0=\$61$. Consider an investor that buys
one call with a strike price equal to $K_1=\$55$, that costs $c_1=\$10$, buys another call with strike
price ...
0
votes
0answers
19 views
Insured Portfolio via call + cash: how much cash?
I am unsure about the quantities to keep in the risky asset, S, and the non-risky asset, M, when constructing an insured portfolio via Call + Cash (rather than Stock + Put). My understanding so far is ...
1
vote
1answer
116 views
Put-Call parity arbitrage relationship
I would like to know what the relationship is between the time value of call/puts. From the put call parity formula
$$C-P = S_{t} - PV(K)$$
and that value of call/put options is simply the sum of ...
0
votes
1answer
301 views
Calculating risk free rates from risky options using put call parity
My questions relates to this post Implying risk-free rates using Put/Call parity , but I am using a different approach.
Given: ODAX (Options on "DAX") Settlement prices across different maturities ...
0
votes
1answer
515 views
Calculate forward price based on option chain
I've got historical data for a spy option chain which looks as follows
...
2
votes
1answer
565 views
Boundary for European Put Option
As an entry level financial engineer, I'm learning about call-put parity, which helps us to get the boundary for call option: $S-Ke^{-rT}\leq c\leq S$, what about put option? Should its upper bound be ...
1
vote
0answers
44 views
What is the effect of put call open Interest on price action
how option put call open Interest affects price actions as put sellers feel price when price goes down or call sellers feel pain when price goes up and how this affects price action. ie when price ...
1
vote
1answer
3k views
Proving the put call parity
In my course notes on the put-call parity, the proof is presented by going over two inequalities, namely $\text{RHS} > \text{LHS}$ implies arbtirage and $\text{RHS} < \text{LHS}$ implies ...
0
votes
2answers
197 views
Why are put and call options worth the same despite that put has no upside whereas call has unlimited upsides?
The following is an interview question.
All Black-Scholes assumptions hold. Assume no dividends. Consider a standard European call and a standard European put on the same stock. Assume that each ...
0
votes
1answer
72 views
Time to Put or Call a Bond
I was studying putable bond and callable bond on my own, there is an exercise question that was a little confusing to me:
I understand what the answer explains, but I am confused that, is a bond "...
1
vote
1answer
321 views
Continuous Geometric Asian Options
Assume the risk-free bond $B_t$ and the stock $S_t$ follow the dynamics of the Black & Scholes model
without dividends (with interest rate r, stock drift $\mu$ and volatility $\sigma$).
Let $c(t; ...
2
votes
1answer
267 views
How to prove Gamma is the same for a European call and European put with the same inputs?
I saw from a text "From put-call parity, call and put with the same inputs have the same gamma", but I don't see how put-call parity is related to Gamma. Can someone explain? Thanks!
2
votes
1answer
291 views
Why is put-call parity defined differently by CME and Wikipedia?
In general, Wikipedia defines Put-Call parity as:
C - P = D(F - K)
----------------
C = call price
P = put price
F = *FORWARD* price
K = strike
which can be re-...
1
vote
0answers
89 views
Prove the following Call and Put relationship: [duplicate]
I need to prove that
$$c(S,X,T)=\frac{X}{F}p(S,\frac{F^2}{X},T)$$
where
$$F=Se^{(r-q)(T-t)}$$
I am having trouble proving this relationship. Is this relationship even possible? If so, can someone ...
0
votes
0answers
49 views
Put-call parity for equity share and debt share
Considering Merton's structural approach" for credit risk modeling, we arrive to prove that the pricing formules are $S_t=V_t\phi(d_{T,1})-Fe^{-r(T-t)}\phi(d_{T,2})$ for equity share and $F_t=FP_0(t,T)...
1
vote
1answer
72 views
Why do we need to borrow money in the call-put parity? [closed]
As I understand it, the call put parity is given by
$$c = p + S - \frac{X}{(1 + r)^T}$$
I understand the rationale behind simultaneously buying the call, put and underlying asset for $S$, but why ...
3
votes
0answers
403 views
What are the main problems for calculating the implied volatility of in the money American put options?
As stated in the question I have a problem with calculating the implied volatility for in the money put options I have a data set of 2.6 million American style plain-vanilla call and put options. For ...
6
votes
2answers
322 views
Why do I get a curved line when I plot "implied interest rate" on the strike price?
Currently, I am working on my thesis (MSc. Finance) and I run into an interesting “phenomenon”. I have option data for a non-dividend paying stock. In class I have learned, how to calculate the ...
1
vote
0answers
106 views
Is it necessary for $P(K, t) - P(K + s, t) \geq se^{-rt}$ to hold?
Let $P(K, t)$ be a put option with strike price $K$ and expiration time $t$. Let $s > 0$. Is it necessarily true that the inequality
$$P(K, t) - P(K + s, t) \geq se^{-rt}$$
holds? I know that ...
0
votes
1answer
146 views
How to get Forward price based on Put-Call parity?
Could you advise how to find a forward price using Call/Put (+Spot and Strike) ? Investodepia says that forward is equal to option's strike based on Put-Call Parity but it seems to me there is a ...
1
vote
1answer
626 views
Bermudan Swaption
Is there an equation of the kind of call-put parity for Bermudean swaptions ? (maybe an inequality )
Is there an intuitive description of what would be an optimal exercise moment ? Intuitively I ...
0
votes
2answers
164 views
Construct a portfolio of European call options with a certain payoff function
My question is similar to Replicate a Portfolio with Given Payoff but I am not quite sure how to apply this to my problem.
A portfolio of European call options on an asset $S_T$ has a payoff function ...
2
votes
1answer
316 views
Determine the maximum arbitrage profit from the given contracts
I really have tough time trying to figure this out.
An investor observes the following prices in the market: Euro-Stoxx-Future DEC 148.02-148.03; Euro-Stoxx-Future Call-Option DEC 148.00 1.13-1.15; ...
5
votes
0answers
363 views
Implied Funding/Borrow Costs in Short-Dated ETF Option Prices
I'm struggling with some anomalous behavior in an analysis I'm running and was hoping for some advice/insights. I'm attempting to extract the implied funding/borrow costs from ETF option prices (say ...
2
votes
1answer
302 views
Should Put/Call Parity result in Zero Return or the Risk-Free Rate?
Sorry in advance if this is a basic question. I'm examining some potential at-the-money put/call arbitrage. What I found surprised me somewhat:
...
2
votes
1answer
497 views
Call Option Overvalued and put-call parity [closed]
I have a question regarding if a Call option is overvalued compared to the call price and how you can benefit from the Arbitrage opportunity.
My thoughts are as follows:
Step 1: Short the call ...
1
vote
1answer
165 views
Is there an advantage trading options based on deep in the money Open Interest Volume ratio
Problem:
Deep in the money options contracts will be assigned at expiration date.
Higher Volume ratio of deep in the money contracts at expiration calls or puts leads to day after expiration date we ...
0
votes
1answer
255 views
Decreasing value of the Put option with increasing Time to maturity [closed]
Can you think of a situation when increasing the time to maturity lowers the value of a put option? If yes, show the example pls.
2
votes
1answer
209 views
Risk of Put-Call-Parity in practice
When $C+PV(K) \ne P + S_0$, it's an opportunity for risk-free arbitrage (excluding cost).
In practice, what potential risk could make the arbitrage fail?
I know that failure to build complete ...
1
vote
1answer
147 views
Equity repo close to money market rates?
I've noticed that the repo rate (here I mean the effective financing rate of the forward position in stock) implied from synthetic forwards is almost the same as money market benchmark (XXXibor 3M) ...
7
votes
2answers
3k views
Put-call parity for cash settled swaptions
The Euro swaption market is changing from cash to physical settlement quotation in July 2018 $-$ see e.g. "Euro swaptions market prepares for pricign revamp (Risk, 2018)". When describing ...
4
votes
3answers
1k views
Put Call Symmetry
I want to show the Put Call Symmetry without using the explicite Black Scholes formula. In other words I want to show
Call(t, x, K, T) = Pull(t, K, x, T)
where $S_t = x $ for $t \in [0, T]$.
I ...
0
votes
0answers
90 views
Different versions of Put-Call Parity
Why is it stated sometimes that $C - P = F$
and in wikipedia it statest that $C - P = D(F-K)$, where D is the discount factor and K is the strike (of both the call and put?).
Is this just affected ...
