Explain why the sum of prices of the call-on-a-call and call-on-a-put is equal to the price of

Question:

Explain why the sum of prices of the call-on-a-call and call-on-a-put is equal to the price of the call with expiration T₂. Show that the price of a European call-on-a-put is given by 3 Option Pricing Models: Black–Scholes–Merton Formulation

c(S, t) = Xe-(2-1) N(a2, -b; -p) - SN(a, b; -p) er(T) XN (a2), where a₁,b₁,a₂ and b₂ are defined in Sect. 3.4.4

Use the relation

N(a, b; p) + N(a, b; p) = N(a).

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

See More Books

Question Posted: Dec 02, 2023 04:02 AM

See More Questions

KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
The mean prices (in dollars) of regular gasoline in the 50 states on April 27, 2014, are described by the boxplot in Fig. 102. a. Estimate the mean price of regular gasoline in Hawaii, which has the...
Explain why the sum of the entries in each row of Pascal's triangle is a power of 2.
Figure 11-31 shows a cooling curve for a Pb-Sn alloy. Determine (a) The pouring temperature; (b) The superheat; (c) The liquidus temperature; (d) The eutectic temperature; (e) The freezing range; (f)...
With regard to filing requirements for 501(c)(3) organizations: a. List those entities that are not required to file. b. What are the three financial statements required in Form 990?
Power-To-Spare, Inc. makes a smartphone case that includes a battery that extends the operating life of an iPhone. The manufacturing costs per unit include $15 direct materials, $17 direct labor and...
Why is the term liquidating dividend used to describe cash dividends debited against paid-in capital accounts? AppendixLO1
Calculating Annuity Present Value An investment offers $4,600 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 percent, what is the value of the...
h cochran inc is considering a new three year expansion project that requires an initial fixed asset investment of $2,600,000. the fixed asset will be depreciated straight line to zero over its...
Find the price formulas for the following European compound options: (a) Put-on-a-call option when the underlying asset pays a continuous dividend yield q; (b) Call-on-a-put option when the...
Show that the first term in the last integral in (3.4.27) can be expressed as where x = ln S T2 and y = ln S T1 . Through comparison with the second term in (3.4.27), show that the above integral...
Wundt described psychology as the study of conscious experience, a perspective he called____________.
Pop Company holds 70% of Son Company stock. Pop has sold inventory to Son Company as follows: Percent of Sold Sales Inventory Cost to Price to Held at Year Pop Son Year end 2018 $203,000 $355,000 30%...
A B C D E F G H J K L 1 Cost Mortgage Payments 2 Cost Description The upscale hotel's building was acquired for $10 million, leading to monthly mortgage payments of $60,000. Behavior Dollar Amount...
What celebrity attributes make for effective celebrity product endorsements? Celebrity testimonials are advertising messages delivered by famous people who say or imply that they use the...
Initial investment of $100,000 in a new medical equipment. Interest Rate 10% (Borrowed money from a bank). Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Investment 100,000 Expected Cash Flow 20,000...
How do I draw a top view of this sketch and I was also wondering how to draw an oblique cabinet projection. + + 1 1 ' '
In Problems 1-4, write the first four terms of the sequence {an}. Then use Theorem D to show that the sequence converges? 1. 2. 3. 4. 4n 3 @n al 1l 2 n+ 1 /n an = 1 +-+-+ + rt 2 3
What are some of the various ways to implement an awareness program?
Could the approaches to cost allocation that we discussed in this chapter apply to a firm, like a travel agency, that produces only services? Explain your thinking.
What types of human resource issues does a marketing manager face when planning to expand sales operations from a branch office in a new overseas market? Are the problems any different than they...
Discuss the merits of various economic system objectives. Is the objective of the American economic system sensible? Could it achieve more consumer satisfaction if sociologists or public officials...
Dr. Claudia Gomez, a plastic surgeon, had just returned from a conference in which she learned of a new surgical procedure for removing wrinkles around eyes, reducing the time to perform the normal...
QUESTION 2 ( 2 0 Marks ) 2 . 1 REQUIRED Study the information provided below and prepare the Income Statement for the year ended 3 1 December 2 0 2 3 using the marginal costing method. INFORMATION...
DROP DOWN OPTIONS: FIRST SECOND THIRD FOURTH 5. Cost of new common stock A firm needs to take flotation costs into account when it is raising capital fromY True or False: The following statement...

Explain why the sum of prices of the call-on-a-call and call-on-a-put is equal to the price of

Question:

c(s, t) = X₂e-¹(2-1) N₂(a2, -b₂; - p) - SN₂(a₁, b₁; -p) — e¯r(T₁−¹) X₁N (a2),

Step by Step Answer:

The sum of prices of a callonacall and callonaput being equal to the price of a call with expiration T2 is a result of the putcall parity principle in ...View the full answer

Mathematical Models Of Financial Derivative

Students also viewed these Business questions