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28 Sep 2019
Are each of these true or false and why?
1. If you are sure that an American option will be in-the-money before expiration, you should always purchase that option.
2. Suppose we have a stock that will not pay out any dividends in the future and the current risk free interest rate is greater than 0. An at-the-money European call option on the given stock must cost more than an at-the-money European put option on that stock with the same expiration. [Hint: Use the Put-Call Parity condition along with what it means for the option to be âat-the-moneyâ.]
Are each of these true or false and why?
1. If you are sure that an American option will be in-the-money before expiration, you should always purchase that option.
2. Suppose we have a stock that will not pay out any dividends in the future and the current risk free interest rate is greater than 0. An at-the-money European call option on the given stock must cost more than an at-the-money European put option on that stock with the same expiration. [Hint: Use the Put-Call Parity condition along with what it means for the option to be âat-the-moneyâ.]
Patrina SchowalterLv2
28 Sep 2019
