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Explain the call-put parity relation and how it is justified

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Reference no: EM133133279

Question - The below question is of the course "Financial Derivatives and Risk Management".

1. Explain the call-put parity relation and how it is justified.

2. Describe the five variables (Stock Price, Exercise Price, Risk-Free Rate, Volatility (or Standard Deviation and Time to Expiration) that the Black-Scholes-Merton Formula uses to calculate the price of call and put options.

3. Explain how the change in these variables (Stock Price, Exercise Price, Risk-Free Rate, Volatility (or Standard Deviation and Time to Expiration) affects the price of the option.

4. Explain how these variables (Stock Price, Exercise Price, Risk-Free Rate, Volatility (or Standard Deviation and Time to Expiration) are grouped to show the put-call parity relationship and suggest the condition in which there is an arbitrage opportunity.

Reference no: EM133133279

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