Unformatted text preview: th the same set of payoffs is: Buy a put with an exercise price of $150 Buy a share of stock Borrow the present value of $150 Sell a call with an exercise price of $50 11. Statement (b) is correct. The appropriate diagrams are in Figure 20.5 in the text. The
second row of diagrams in Figure 20.5 shows the payoffs for the strategy: Buy a share of stock and buy a put. The third row of Figure 20.5 shows the payoffs for the strategy: Buy a call and lend an amount equal to the exercise price.
12. Answers here will vary depending on the options chosen, but the formulas will work very
well; discrepancies should be on the order of 5 percent or so, at most. 13. We make use of the putcall parity relationship: Value of call + Present value of exercise price = Value of put + Share price
a. Rearranging the putcall parity relationship to show a short sale of a share of stock,
we have: ( Share price) = Value of put Value of call PV(EX) This implies that, in order to replicate a short sale of a share of stock, you would
purchase a put, sell a call, and borrow the prese...
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- Fall '04
- Math, Exercise Price, 85, Mr. Colleoni, b. Bond