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Put-call parity for options on forward contracts at the initiation of the option where the forward price at that time (time=0) is FT, can best be expressed as:
A)
c0 + X / (1 + R)T − FT = p0.
B)
c0 + (X − FT) / (1 + R)T = p0.
C)
c0 − (X − FT) / (1 + R)T = p0.



Put call parity for stocks (with discrete time discounting) is c0 + X / (1 + R)T − S0 = p0. Noting that for the forward contract on an asset with no underlying cash flows, S0 = FT / (1 + R)T, and substituting, we get c0 + (X − FT) / (1 + R)T = p0.

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Which of the following would have the same value at t = 0 as an at-the-money call option on a forward contract priced at FT (the forward price at time = 0)?
A)
A put option, long the underlying asset, and short a risk-free bond that pays X-FT at option expiration.
B)
A put option, long the underlying asset, and short a risk-free bond that matures at X at option expiration.
C)
A put option on the forward at exercise price (X).



Put-call parity for options on forward contracts is c0 + (X – FT) / (1+R)T = p0. Since X = FT for an at-the-money option, the put and the call have the same value for an at-the-money option.

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Which of the following is a correct specification of put-call parity for options on futures?
A)
B)
C)



Begin with put-call parity for a stock, and substitute

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Early exercise of in-the-money American options on:
A)
both futures and forwards is sometimes worthwhile.
B)
futures is sometimes worthwhile but never is for options on forwards.
C)
forwards is sometimes worthwhile but never is for options on futures.



Early exercise of in-the-money American options on futures is sometimes worthwhile because the immediate mark to market upon exercise will generate funds that can earn interest. It is never worthwhile for options on forwards because no funds are generated until the settlement date of the forward contract.

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Regarding deep in-the-money options on futures, it is:
A)
sometimes worthwhile to exercise both calls and puts early.
B)
sometimes worthwhile to exercise calls early but not puts.
C)
never worthwhile to exercise puts or calls early.



If puts or calls on futures are significantly in-the-money it may be worthwhile to exercise them early to generate the cash from the immediate mark to market of the futures contract when the option is exercised.

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Regarding deep in-the-money options on forwards, it is:
A)
never worthwhile to exercise puts or calls early.
B)
sometimes worthwhile to exercise calls early but not puts.
C)
sometimes worthwhile to exercise both calls and puts early.



Unlike futures, forwards do not generate any cash at exercise even when they are deep in-the-money so there is no advantage to early exercise.

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Which of the following statements is most accurate?
A)
American options on forwards are more valuable than comparable European options on forwards.
B)
European options on futures are more valuable than comparable American options on futures.
C)
American options on futures are more valuable than comparable European options on futures.



Because of the mark-to-market feature of futures contracts, American options on futures are more valuable than comparable European options. The value of American and European options on forwards are the same.

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