Question
In their paper, Goncalves-Pinto et al. (2019) use the option-implied stock price derived from put-call parity to analyse stock return predictability identified by option prices.
In their paper, Goncalves-Pinto et al. (2019) use the option-implied stock price derived from put-call
parity to analyse stock return predictability identified by option prices.
They argue that when transaction costs are considered, put-call parity for European options becomes
a set of inequalities:
(a) Suppose that (1) is not satisfied. How would you arbitrage this? Include a cash flow table in
your answer.
(b) Suppose that the option-implied value is above the price at which the stock is currently
trading. On average, this stock will earn a positive return in the near future. What are the two
potential explanations that the literature has put forward for this phenomenon?
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Online Marketing For Hotels The Definitive Guide To Direct Distribution How To Get The Most Out Of Your Advertising Money And Boost Website Revenue
Authors: Jan Sammeck
1st Edition
1798527871, 978-1798527870
