WW: 5Course: M339D/M389D - Intro to Financial Math Page: 1 of 1
University of Texas at Austin
Warm-up Worksheet #5
Put-call parity
In preparation for the next class, please solve the following problems. Your solutions are due in the
beginning of class on April 30th. Your score in this assignment will count as one of the homework-
assignment scores.
5.1. Put-call parity.
Problem 5.1. (5 points)
The current price of a non-dividend paying stock is given to be $100 per share. A six-month, at-the-money
American call option on this stock is currently priced at $6.96.
The continuously compounded risk-free interest rate is given to be 0.04.
What is the price of the otherwise identical European put option?
Problem 5.2. (5 points)
The current price of a discrete-dividend paying stock is given to be $100 per share. The stock is supposed
to pay a $10 dividend in half a year. There are no other projected dividend payments.
A one-year, $96-strike European put option on this stock is currently priced at $8.76.
The continuously compounded risk-free interest rate is given to be 0.04.
What is the price of the otherwise identical European call option?
Problem 5.3. (5 points)
The current price of a discrete-dividend paying stock is given to be $100 per share. The stock is supposed
to pay a $5 dividend in four months and a $6 dividend in eight months. There are no other pro jected
dividend payments.
A half-year, $107-strike European put option on this stock is currently priced at $13.85.
The continuously compounded risk-free interest rate is given to be 0.05.
What is the price of the otherwise identical European call option?
Instructor: Milica ˇ
Cudina
