Reading 62: Option Markets and Contracts-LOS a 习题精选 center, investor, interpret, 2011, class

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Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 62: Option Markets and Contracts

LOS a: Calculate and interpret the prices of a synthetic call option, synthetic put option, synthetic bond, and synthetic underlying stock, and infer why an investor would want to create such instruments.

 

 

Referring to put-call parity, which one of the following alternatives would allow you to create a synthetic riskless pure-discount bond?

A) Buy a European put option; sell the same stock; sell a European call option.

B) Sell a European put option; sell the same stock; buy a European call option.

C) Buy a European put option; buy the same stock; sell a European call option.

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According to put-call parity we can write a riskless pure-discount bond position as:
X/(1+R_f)^T = P₀ + S₀ – C₀.

We can then read off the right-hand side of the equation to create a synthetic position in the riskless pure-discount bond. We would need to buy the European put, buy the same underlying stock, and sell the European call.

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Referring to put-call parity, which one of the following alternatives would allow you to create a synthetic European call option?

A) Buy the stock; buy a European put option on the same stock with the same exercise price and the same maturity; short an amount equal to the present value of the exercise price worth of a pure-discount riskless bond.

B) Buy the stock; sell a European put option on the same stock with the same exercise price and the same maturity; short an amount equal to the present value of the exercise price worth of a pure-discount riskless bond.

C) Sell the stock; buy a European put option on the same stock with the same exercise price and the same maturity; invest an amount equal to the present value of the exercise price in a pure-discount riskless bond.

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According to put-call parity we can write a European call as: C₀ = P₀ + S₀ – X/(1+R_f)^T

We can then read off the right-hand side of the equation to create a synthetic position in the call. We would need to buy the European put, buy the stock, and short or issue a riskless pure-discount bond equal in value to the present value of the exercise price.

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Referring to put-call parity, which one of the following alternatives would allow you to create a synthetic stock position?

A) Sell a European call option; buy a European put option; short the present value of the exercise price worth of a riskless pure-discount bond.

B) Buy a European call option; short a European put option; invest the present value of the exercise price in a riskless pure-discount bond.

C) Buy a European call option; buy a European put option; invest the present value of the exercise price in a riskless pure-discount bond.

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According to put-call parity we can write a stock position as: S₀ = C₀ – P₀ + X/(1+R_f)^T

We can then read off the right-hand side of the equation to create a synthetic position in the stock. We would need to buy the European call, sell the European put, and invest the present value of the exercise price in a riskless pure-discount bond.