Actuarial Outpost Marid Audran
 User Name Remember Me? Password
 Register Blogs Wiki FAQ Calendar Search Today's Posts Mark Forums Read
 FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

 Fill in a brief DW Simpson Registration Form to be contacted when new jobs meet your criteria.

## put-call parity and formulas for option payoffs

Posted 12-29-2008 at 01:03 AM by Marid Audran
Updated 01-15-2009 at 02:22 PM by Marid Audran (changing to a more commonly used notation)

Basic material here. I was reading McDonald's textbook and did not see things described in exactly this way.

Define the function
$x^+ = max(x,0)$.
Say K is the strike price of an option and X is the spot price of the underlying asset at expiration. Then here are the payoffs:
• Long call: $(X-K)^+$
• Short call: $-(X-K)^+$
• Long put: $(K-X)^+$
• Short put: $-(K-X)^+$
Put-call parity is related to the fact that
$(X-K)^+ - (K - X)^+ = X - K.$
That's the payoff from a long call plus a...
Posted in Exams, MFE-3F
Views 3009 Comments 0

## Put-call parity: assorted observations

Posted 12-29-2008 at 12:44 AM by Marid Audran
Updated 12-29-2008 at 01:11 AM by Marid Audran (adding category)

Hi there---first time blog poster. I hope I get this right. FYI, I'm studying at present for Exam MFE/3F. My purpose is to think out loud about some of the facts and concepts covered in the exam. When studying, I'll occasionally set aside some notes to post in the blog later on.
• One way of writing put-call parity is

C - P = PV(F - K),

where C is call price, P is put price (and put and call have identical time to expiration and strike price K), and F is the
...
Posted in Exams, MFE-3F
Views 1816 Comments 0

All times are GMT -4. The time now is 03:29 PM.

 -- Default Style - Fluid Width ---- Default Style - Fixed Width ---- Old Default Style ---- Easy on the eyes ---- Smooth Darkness ---- Chestnut ---- Apple-ish Style ---- If Apples were blue ---- If Apples were green ---- If Apples were purple ---- Halloween 2007 ---- B&W ---- Halloween ---- AO Christmas Theme ---- Turkey Day Theme ---- AO 2007 beta ---- 4th Of July Contact Us - Actuarial Outpost - Archive - Privacy Statement - Top

Powered by vBulletin®
Copyright ©2000 - 2019, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.16087 seconds with 16 queries