- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 9. Option Replication Using Put-Call Parity
- Subject 2. Put-Call-Forward Parity
CFA Practice Question
Consider the following information on put and call options on an asset:
Exercise price: X = 60
Forward price: F(0, T) = 55
Days to option expiration: 180 days
The continuously compounded risk-free rate: r(c) = 4%
Put price: p0 = 8
Exercise price: X = 60
Forward price: F(0, T) = 55
Days to option expiration: 180 days
The continuously compounded risk-free rate: r(c) = 4%
Use put-call-forward parity to calculate the price of a synthetic call option.
Correct Answer: 3.10
c0 = long forward + p0 - [X - F(0, T)]/(1 + r)T = 0 + 8 - (60 - 55)/1.04180/365 = 3.10
User Contributed Comments 2
| User | Comment |
|---|---|
| MGM13 | The long forward value is zero. Does this imply that this is at initiation, when the forward VALUE (which is different from the PRICE, no?) is equal to zero? Is the 55 used simply to determine if we are long or short the forward (by comparing it to the exercise price)? Thanks. |
| yyttcgg | Yes the value of a forward is zero when initiated. |