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

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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 like 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 like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration affect the price of the option.

4. Explain how these variables like 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: EM133136123

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