Questions tagged [put-call-parity]
The put-call-parity tag has no usage guidance.
1
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1answer
40 views
Call Option Overvalued and put-call parity
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
100 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
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1answer
64 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
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1answer
106 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
89 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) ...
6
votes
2answers
756 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 the issues ...
2
votes
3answers
376 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
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0answers
47 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 ...
2
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0answers
146 views
Understanding put-call parity
I'm a person with math background trying to break into quantitative finance, and there's something about put-call parity that is not making sense to me. Below I'll detail my understanding of the ...
5
votes
1answer
262 views
Interpretation and intuition behind the Put-Call symmetry under the Heston Model
I am currently working on a report regarding the put-call symmetry relations under the Heston model. I did all the math and managed to prove the relations using PDE approach. However, I wish to have a ...
0
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0answers
158 views
Arbitrage Strategy Long American Call and Short European Call
We know for the fact that the holder of an American call option has all the same rights as the holder of a European call option and more. This also results in American call option always worth at ...
2
votes
1answer
180 views
Question about the vega of a stock
In Black-Scholes model with constant parameters, a call and a put with the same characteristics have the same vega: https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model#The_Greeks
Using call-put ...
1
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0answers
201 views
Convexity of Call option prices using Put-Call parity relationship
I am trying to price vanilla options using a particular Bayesian approach that I have found in a paper. To do that I need to construct a likelihood function, approximating the tail of the distribution ...
0
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1answer
254 views
Violation of the call-put parity
The last price of Wells Fargo (Ticker: WFC) on Thursday, 10/26/17, was
$55.62. Options with expiration 11/17/17 had following last prices: Options with expiration 11/17/17 had following last prices:
...
2
votes
2answers
182 views
Is an options implied dividends DCF model consistent with risk neutral/arbitrage-free valuation?
We're talking about how we price every financial instrument: by discounting the payoff, that is, we take future cash flows and we discount them by a proper rate which takes into account the risk of ...
8
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2answers
553 views
Implying risk-free rates using Put/Call parity
I recently purchased SPX options data from the CBOE. Normally, if the data is OK and the Put-Call parity holds, one should expect to correctly imply ZC (Zero Coupon bond) prices and forwards by ...
0
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1answer
175 views
Put-Call Parity on Currency and Binomial Trees
I tried solving the below problem without knowing the shortcut of thinking about this in terms of a put versus a call. I can't seem to arrive at the correct answer using my method and I'm wondering ...
0
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0answers
97 views
Difference between writing a call and selling a call
I'm just trying to understand the mechanism behind the two, and why they are used interchangeably.
What if someone decides to write a call on a Stock, and I decide to buy the Call (Let's say the ...
3
votes
3answers
2k views
Relationship between forward and option prices
Do forward prices factor into option prices at all? It seems to me from Black-Scholes that you just need a spot price and interest rate r.
I understand that $F_t = S_0 e^{r t}$, but I don't know if ...
4
votes
1answer
336 views
Build a Synthetic Loan for Personal Finance
Suppose I am short of cash and want a loan for some mundane objective like travelling or buying a car. The interest rate for personal loan with my bank is too high.
Is there any way in finance that ...
5
votes
3answers
516 views
At the money put and call having the same price
This is a commonly asked question and I have not been able to find a satisfactory answer to it. Let me first phrase it here. Suppose that interest rates are $0$ and consider an at the money put and an ...
1
vote
1answer
136 views
How far the spot price is likely to go from the current level in three months if its volatility is 15.7%
On Page 24 of N. Taleb's "Dynamic Hedging" the author gives the following example
Example: Assume that an asset trades at \$100, with interest rates at 6%
(annualized) and volatility at 15.7%. ...
1
vote
2answers
474 views
Prove that the vertical spread condition is bounded
I need to prove that vertical spread is bounded, by using no arbitrage condition.
0 > (C(T,K1 )- C(T,K2))/(K1- K2 ) >-e^(-r*T )
I have documented my ...
0
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0answers
28 views
Best strategy for generating floats with minimum amount of risk
I'm looking for a way to get cash-in-hand in exchange for future obligation.
For example, I can sell deep-in-the-money puts and buy out-of-the-money puts (for hedge) with expiration of 2 years, The ...
0
votes
1answer
71 views
Is it possible to calculate the call-put parity for an option's portfolio?
Let's say I have designed an option's portfolio. The portfolio includes long as well as short positions in European-style put and call contracts based on the same underlying asset with different ...
1
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1answer
128 views
Is this representation of the put-call parity correct? (Implied dividend estimation)
I am looking at implied dividend yields to be obtained from the put-call parity and have come across the following answer:
Implied dividend estimation
It states that
$$
PV(div) = P - C + (S - K) + K(...
1
vote
1answer
94 views
Put call parity: when are the premiums the same?
Please explain why put call parity could be compared to the payoff of a long forward contract.
ie. $C_E-P_E=V_X(0)$ where $C_E,P_E$ are the call/put premiums and $V_X(0)$ is the value of a long ...
3
votes
3answers
512 views
Construct option and stock portfolio
If a riskless security costs 100 today and will cost 120 at time T, a stock costs 50 today and will either be 70 or 30 at time T, and call options on the stock have strike price 50 expiring at time T, ...
1
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3answers
248 views
Put-Call Parity Application
In the binomial model, how that the Delta of a call option $\Delta^{call}$ and the Delta of a put option $\Delta^{put}$ with the same maturity and strike satisfy
$$\Delta^{call}_t - \Delta^{put}_t = ...
2
votes
1answer
59 views
Understanding the necessary and sufficient conditions for rational early exercise of a call option
I am self-studying for an actuarial exam, and I encountered the following in my text:
The author states that if $PV_{t, T}\text{(Divs)} < K(1 - e^{-r(T - t)})$, early exercise is not rational.
...
4
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4answers
2k views
Difficulty understanding put-call parity for currency options
I am self-studying for an actuarial exam on models for financial economics. I am having difficulty thinking about the put-call parity for currency options, specifically how use the notation. Here is ...
0
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1answer
84 views
Problem solving using the put-call parity
I am self-studying for an actuarial exam on financial economics. I encountered this problem, and I am having difficulty seeing why the statement underlined is true:
How do we know that $P(60) - C(60) ...
1
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1answer
89 views
What is more likely effect to call and put prices, respectively, if the stock price decreases by$1?
The current stock price is \$80.Call ,and ,put, options, with ,exercise ,prices, of $50 and 3 days to maturity are currently trading.
What is more likely effect to call and put prices, respectively, ...
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0answers
219 views
Logic between options and risk free rate [closed]
What is the relationship between put option price and risk free rate? And between call options price and risk free rate? Explain the logic? No calculation.
1
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0answers
30 views
Financial Derivative, European Option [closed]
Market Prices for European put and call options on ABC stock are as below:
Call = $4.5
Put = $6.8
Exercise Price, X =$70
Risk Free Annual Compounded rate r = 5%
Time to expiration T = 139 days
...
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2answers
742 views
put call parity for futures options derivation in Hull
In Hull, the following derivation of PCP for futures options:
What confuses me is that it is stated that the payoff of the long futures is $F_t-F_0$. The footnote states: the analysis assumes that a ...
0
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1answer
827 views
Put-Call Parity Arbitrage Exploitation for Binary-Asset-or-Nothing Options
Is the Put-Call-Parity valid for binary (asset-or-nothing) options? If not, is there another formula for such exotic options?
I know that for regular options, there are arbitrage opportunities when ...
3
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1answer
3k views
Why is IV different between put and call of same strike
In his book 'Dynamic Hedging' Nassim Taleb says that the volatility of an OTM put should be exactly equal to that of a corresponding in the money call of same strike.
But in option chains, the ...
0
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1answer
255 views
PWIQF excercise solution
I am software developer with no previous experience or knowledge in finance and have recently been starting to build my knowledge in this area. I am working through the book: Paul Wilmott Introduces ...
1
vote
1answer
572 views
Risk-free investment strategy for european call and put option
I have some trouble solving the following question:
We have an european call and put option (with the same maturity date $T$ en strike $E=10$). The stock price now is $S=11$ and we use a continuous ...
4
votes
1answer
260 views
put-call parity equation
I'm reading this book and I'm looking at page 4, and we are considering the case where $C_t - P_t - S_t$ is negative, which means that selling the call did not offset the cost of the stock and the put ...
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6answers
8k views
Call vs. Put Option
I have two interrelated questions that have been bothering me for some time. I have read all the stuff online and it still doesn't make sense to me:
Let us assume:
0% interest rate (both hedge ...
4
votes
4answers
11k views
Early execise of American Call on Non-Dividend paying stock.
Let us consider an American call option with strike price K and the time to maturity be T. Assume that the underlying stock does not pay any dividend. Let the price of this call option is C$^a$ today ...
10
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4answers
3k views
Why the interest rate for put-call parity is not constant?
Usimg the put-call parity
$C - P = S - K · e^{-rt}$
I tried to estimate the value of $e^{-rt}$, the present value of a zero-coupon bond that matures to 1 in time $t$:
$e^{-rt} = (P - C + S) / K$
...
4
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2answers
842 views
Does put-call parity hold for a compound option with underlying American option?
Say there is an American put option that expires $N$ months from today.
A call-on-put (CoP) option provides the owner the right to buy the American put option in exactly $M < N$ months (but no ...
7
votes
2answers
723 views
What changes to put-call parity are necessary when evaluating american options on non-dividend paying assets?
If an underlying doesn't pay dividends (for our purpose defined as any distribution to the underlying's holder) directly or indirectly (e.g. options on futures) how does put-call parity change from ...
2
votes
1answer
1k views
What exactly is the annualized forward premium?
A forward contract has a premium of $ 0$ because it is an obligation to buy or sell something in the future (hence there is more risk). Call and put options, on the other hand, have premiums of $C$ ...
21
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6answers
2k views
Setting the r in put-call parity?
Put-call parity is given by $C + Ke^{-r(T-t)} = P + S$.
The variables $C$, $P$ and $S$ are directly observable in the market place. $T-t$ follows by the contract specification.
The variable $r$ is ...
