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A European put has an exercise price of $58 that expires in 120 days. The long forward is priced at $55 (also expires in 120 days) and makes no cash payments during the life of the options. The risk-free rate is 4.5% and the put is selling for $3.00. According to the put-call-forward parity, what is the price of a call option with the same strike price and expiration date as the put option? A. $50.43 B. $3.31 C. $0.83 The correct answer is C. c0 = 0.043 hello please i saw this on your website... Please i think this is a mistake... if not, can you please explain to me? thank you in advance
Really good explanation, thank you! Just a quick question, if the risk-free rate changes during the life of a forward contract, should I use the current risk-free rate or maintain it unchangeable?
Hello please i saw this on your website and i am struggling to understand... i will be very glad if you could explain it to me... Thanks During the Life of the Contract, the value of the forward contract is the spot price of the underlying asset minus the present value of the forward price: VT(T) = ST − Fo(T) (1+r)^−(T−r) the present value of the forward price, why is it raised to the power -(T-r)... i though it is supposed to be raised to the power -(T-t) where t is the period into T when the value VT(T) is being calculated... please how is (T-r) a discounting period? Please let’s say T is 5 years… and t is 2 years (the period within the life of the contract when we are calculating for the PV of Fo(T)) In such cases i believe mostly PV is discounted by (T-t) or (5-2) so that it discounts back only 3 periods and not the whole T= 5
Thank you very much for the effort made to upload this video. Extremely helpful! :)
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this was really helpful, the best explanation fore derivatives ever
This was extremely useful. This video helped me to clear and strengthen my concepts
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Very well explained.
Nicely explained . difficult topics in pricing and valuation of basics of derivatives
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Very well explained. Thanks Prof Forjan.
Glad you liked it!
Thanks a lot, Prof!! Loved your teaching style and I am going to find myself some Honey crisp Apples! Really helped clear my doubts!
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Thank you so much, it's helpful to understand how trading work with money.
Glad it was helpful!
A European put has an exercise price of $58 that expires in 120 days. The long forward is priced at $55 (also expires in 120 days) and makes no cash payments during the life of the options. The risk-free rate is 4.5% and the put is selling for $3.00. According to the put-call-forward parity, what is the price of a call option with the same strike price and expiration date as the put option?
A. $50.43
B. $3.31
C. $0.83
The correct answer is C.
c0 = 0.043
hello please i saw this on your website... Please i think this is a mistake... if not, can you please explain to me? thank you in advance
Really good explanation, thank you! Just a quick question, if the risk-free rate changes during the life of a forward contract, should I use the current risk-free rate or maintain it unchangeable?
risk-free rate always changes in real life, so it's better to use the current rf rate
Hello please i saw this on your website and i am struggling to understand... i will be very glad if you could explain it to me... Thanks
During the Life of the Contract, the value of the forward contract is the spot price of the underlying asset minus the present value of the forward price:
VT(T) = ST − Fo(T) (1+r)^−(T−r)
the present value of the forward price, why is it raised to the power -(T-r)... i though it is supposed to be raised to the power -(T-t) where t is the period into T when the value VT(T) is being calculated...
please how is (T-r) a discounting period?
Please let’s say T is 5 years… and t is 2 years (the period within the life of the contract when we are calculating for the PV of Fo(T))
In such cases i believe mostly PV is discounted by (T-t) or (5-2) so that it discounts back only 3 periods and not the whole T= 5
Thank you
isnt this reading 46?