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7.Option strategies. Understand how you can create different payoffs holding and writing puts and calls. Be able to use arbitrage arguments to show put-call parity
7.Option strategies. Understand how you can create different payoffs holding and writing puts and calls. Be able to use arbitrage arguments to show put-call parity must hold. Also be able to explain why American options are worth at least as much as European options. Note the special case of a call option on a stock with no dividend , so that the American option will not be exercised before maturity. 7.Option strategies. Understand how you can create different payoffs holding and writing puts and calls. Be able to use arbitrage arguments to show put-call parity must hold. Also be able to explain why American options are worth at least as much as European options. Note the special case of a call option on a stock with no dividend , so that the American option will not be exercised before maturity
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