Question
The market volatility does not enter directly into the put-call parity relationship but it does affect the prices of the options. Suppose that at a
The market "volatility" does not enter directly into the put-call parity relationship but it does affect the prices of the options. Suppose that at a certain day and time a European call and a European put with the same strike price and maturity date are selling for c=$7 and p=$4 respectively. Suddenly there is a news report that increases uncertainty in the market and volatility spikes up. Which of the following could be the prices of these calls and puts that result from this change in volatility alone?
a. c=$8, p=$6
b. c=$6, p=$3
c. c=$7, p=$5
d. c= $6, p=$5
e. c=$9, p=$6
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