easy · Quantitative Finance derivatives
A 1-year European call option with strike K = 50 costs $5, while the corresponding put costs $3. The current stock price is $50 and the risk-free rate is 5% continuously compounded.
Based on put-call parity, what is the arbitrage-free relationship?
- The stock price must rise to satisfy parity.
- The put is relatively expensive compared to the call.
- The call is relatively expensive compared to the put.
- The market is in equilibrium with no arbitrage.
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