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- Use the put-call parity relationship to demonstrate that an at-the-money call option on a nondividend-paying stock must cost more than an at-the-money put option. Show that the prices of the put and call will be equal if So = (1 + r)^TBecause of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock, provided the strike prices for the put and call are the same. Group of answer choices True FalseIn the Black-Scholes option pricing model, the value of a call is inversely related to: a. the risk-free interest stock b. the volatility of the stock c. its time to expiration date d. its stock price e. its strike price
- A) Explain the relationship between strike prices and implied volatilities under a price jump scenario. B) How does a dividend payment impact the option price?Explain the call-put parity relation and how it is justified. Black-Scholes-Merton formula uses five variables to calculate the price of call and put options. Explain each of these variables incorporated in Black-Scholes-Merton formula. Show how the change in these variables affects the price of option. Show how these variables are grouped to show put-call parity relationship and suggest the condition in which there is an arbitrage opportunity. (Explain each of the things in detail with an appropriate examples)Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.
- The pay off from an option depends on the market price of the underlying asset a) a put holder benefits from increase in the price b)a put writer benefits from an increase in the price c) a call holder benefits from decrease in price d) none of these are true4. Answer the following questions on exotic options: (a) Discuss the differences between a combination and a spread when constructing portfolios of options. (b) Define a long strangle and represent the profit function. (c) Design a forward contract on a stock with a particular delivery price and delivery date as a combination of options on the same underlying asset.What is Put-Call Parity (select the best answer)? Group of answer choices Put-Call Parity suggests that puts and calls have equal, but opposite, values. Uses arbitrage arguments showing that a portfolio of the underlying stock plus a put has the exact same payoffs as a portfolio of a risk-free bond plus a call. Thus, those two portfolios must have equal value. Uses arbitrage arguments to show that the value of a Put is equal to the value of a Call plus the Stock Price. Uses arbitrage arguments to show that the value of a Call is equal to the value of the underlying stock plus the value of a Put.
- The premium on a put option is primarily a function of the difference in spot price S relative to the strike price X, the time until maturity T, and the volatility of the currency o. P = f(S-X, T, o) For each characteristic of a put option, use the table to indicate whether that would lead to a higher put option premium or a lower put option premium (all else equal). Characteristic A lower spot price relative to the strike price A shorter time before expiration A higher level of volatility for the currency Higher Put Option Premium Lower Put Option Premium When using a put option to hedge receivables in an international currency, a U.S. based MNC can lock in the receive. minimum maximum amount of dollars it willWhen the Black-Scholes and binomial tree models are used to value an option on a non- dividend-paying stock, which of the following is true? O The binomial tree price converges to a price above the Black-Scholes price as the number of time steps is increased O The binomial tree price converges to a price below the Black-Scholes price as the number of time steps is increased The binomial tree price converges to the Black-Scholes price as the number of time steps is increased O None of these ◄ Previous Next ▸For the writer of a put option, if the underlying share price: a. moves above the strike price, the potential profits are limited to the premium. b. moves above the strike price, the potential profits are unlimited. c. drops below the strike price, the potential profits are unlimited. d. moves above the strike price, the premium is reduced by the difference.