{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

lec04_03

# lec04_03 - ECON 4721H Money and Banking Lecture 04_03...

This preview shows pages 1–6. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON 4721H Money and Banking Lecture 04_03 Satoshi Tanaka University of Minnesota October 17, 2011 Satoshi Tanaka ECON 4721H Money and Banking Lecture 04_03 Financial Derivatives III Put Options, Forwards, and Futures Satoshi Tanaka ECON 4721H Money and Banking Lecture 04_03 Put-Call Parity Claim For European options, we always have S ( t )+ P ( t ) = X exp (- r f ( T- t ))+ C ( t ) (1) Proof. Both the right- and left-hand sides give the value, max [ S ( T ) , X ] , on the maturity date. This equation only holds for European options. Satoshi Tanaka ECON 4721H Money and Banking Lecture 04_03 Pricing Put Options From the Black-Scholes Formula, the price of European-call was; C t = S t Φ( d t )- X exp (- r f ( T- t ))Φ d t- σ √ T- t (2) Then, the price of a European put is given by: P t = X exp (- r f ( T- t ))Φ- d t + σ √ T- t- S t Φ(- d t ) Satoshi Tanaka ECON 4721H Money and Banking Lecture 04_03 Forwards and Futures De nition (Forwards) A forward contract is an agreement between a buyer and a seller to...
View Full Document

{[ snackBarMessage ]}