Lec04_03 - ECON 4721H Money and Banking Lecture 04_03 Satoshi Tanaka University of Minnesota Satoshi Tanaka ECON 4721H Money and Banking Lecture

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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...
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This note was uploaded on 02/07/2012 for the course ECON 4721H taught by Professor Tanaka during the Fall '11 term at Minnesota.

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Lec04_03 - ECON 4721H Money and Banking Lecture 04_03 Satoshi Tanaka University of Minnesota Satoshi Tanaka ECON 4721H Money and Banking Lecture

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