pttang

December 3rd 2008, 08:51 PM

Hello,

I am wondering if anyone can answer the following question from ASM...

A European option is modeled with a 1-period binomial tree. You are given:

1. The stock price is 20.

2. The strike price is 20.

3. The risk-free rate is 3%.

4. The continuous dividend rate is 1%.

5. Delta for a 6-month call option is 0.4

Determine Delta for a 6-month European put option with a strike price of 20.

Ans: Using put-call parity, P = C - S* exp(-0.01 * 0.5) + K* exp(-0.015). The answer is 0.4 - exp(-0.005).

I am very lost in where 0.4 - exp(-0.005) comes from.

Thanks for your help in advance!

I am wondering if anyone can answer the following question from ASM...

A European option is modeled with a 1-period binomial tree. You are given:

1. The stock price is 20.

2. The strike price is 20.

3. The risk-free rate is 3%.

4. The continuous dividend rate is 1%.

5. Delta for a 6-month call option is 0.4

Determine Delta for a 6-month European put option with a strike price of 20.

Ans: Using put-call parity, P = C - S* exp(-0.01 * 0.5) + K* exp(-0.015). The answer is 0.4 - exp(-0.005).

I am very lost in where 0.4 - exp(-0.005) comes from.

Thanks for your help in advance!