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Assume today is Dec 1, 2020. The stock price of Delta Airline is $42/share. The American call expiring in 6 months with strike price of
Assume today is Dec 1, 2020. The stock price of Delta Airline is $42/share. The American call expiring in 6 months with strike price of $50 sells for $3.80. The Delta Airline is not expected to pay any dividend in the next year. The risk free-interest rate is 2% with continuous compounding. (10 points)
- (a) What is the put-call parity relation for American options on non-dividend-paying stock ? ( 3 points)
- (b) What is the upper and lower bounds of the American put on Delta Airlines stock with the same strike price and expiration date, using the put-call parity relation in question (a) ? ( 7 points)
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