Question #54, Afternoon BSAS **SPOILER**
Index Price:890
Call option with X=1000 strike price on the index= $68
Risk-Free Rate 1.5%
Discrete Dividend Yield of Index=3.22%
“To avoid any potential arbitrage opportunities, which of the following is closest to the premium of the one-year in-the-money put with an exercise price of X=1000?”
1) I don’t understand why an option derived using Black-Scholes-Merton can have a dividend yield (because of the assumption of no cash flows with the BSM model), but anyway…
2) I don’t know how they solve this. They say use put-call parity, but they take the risk-free and dividend yield rates and make them continuous [ln(1+i)=continuous rate]. They say you have to “reduce the index price by its continously compounded dividend yield factor.”
They claim Put option=Call option + 1000e^(continuously compounded risk-free rate) - 890e^(continuously compounded dividend yield rate).
What freaking put-call parity formula are they using |
发表于 2013-4-7 06:37
| 