Explanation:
Since both sides of the put-call parity equation are equal, we can rearrange the put-call parity to find the put price.
c + X(1 + r)^{-T} = S + p \\ \Rightarrow p = c - S + X(1 + r)^{-T} \\ = 4.5 - 76.5 + 75 \times (1.08)^{-\frac{3}{12}} \\ = \`$1.57`Ultimate access to all questions.
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Q.21 An investment manager is looking to price a 3-month put option on the stock of AWWE, but there's insufficient trading data on put options linked to the stock. Luckily, he's managed to get pricing information of a 3-month call option on the stock. The call option - with an exercise price of $75 - is priced at $4.5. The current price of the stock is $76.5. Estimate the price of the 3-month put option if the risk-free rate is 8% per annum compounded annually.
A
$1.57.
B
$2.78.
C
$1.52.
D
$1.43.