Question
Q) What is put call parity? Explain the concept with the help of a formula for a non-dividend paying stock. What are the underlying assumptions
Q) What is put call parity? Explain the concept with the help of a formula for a non-dividend paying stock. What are the underlying assumptions of this theory? How would you rewrite this equation if the underlying is a stock which declares dividend before the expiry of the option and whose present value is D?
Q) A stock Index is currently trading at 8750. The risk free rate of interest is 8% per annum (continuous compounding) and the dividend yield of the index is 2 % per annum. What should be the futures price of the index for a three months futures contract if each contract is of 100 units?
Q) Discuss the basic features and assumptions of Black Scholes model of option valuation. What are the advantages and limitations of this model in determining the prices of options? Can you use this model for American options?
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