Book 4_Derav_READING 76_OPTION-REPLICATION-USING-PUT–CALL-PARITY Flashcards
1
Q
A fiduciary call
A
a call option and a risk-free zero-coupon bond that pays the strike price X at expiration
2
Q
a protective put
A
a share of stock and a put at X
3
Q
put-call parity for European options
A
A fiduciary call and a protective put have the same payoffs at expiration, so arbitrage will force these positions to have equal prices: c + X(1 + Rf ) -T = S + p.
4
Q
a synthetic security (stock, bond, call, or put) can be created by combining long and short positions
A
c = S + p − X(1 + Rf ) -T
p = c − S + X(1 + Rf ) -T
S = c − p + X(1 + Rf ) -T
X(1 + Rf ) -T = S + p − c
