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Market Prices for European put and call options on ABC stock are as below:

C0 = $4.5

P0 = $6.8

Exercise Price, X =$70

Risk Free Annual Compounded rate r = 5%

Time to expiration T = 139 days

Current Stock Price S0 = $67.32

Determine Synthetic call, put and stock prices using parity relations and explain your observation.

user138232
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  • Ehm, you might want to check your math formatting... – John Alexiou Oct 12 '15 at 18:22
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    I would say the tag 'derivatives' hints to a misunderstanding... – Thomas Oct 12 '15 at 18:23
  • This is about financial derivative :) And there is no any similar tag about this topic, I had to write something similar. If you know better place to publish this financial problem, please write to me – user138232 Oct 12 '15 at 18:25
  • yes, I know that you are talking about financial derivative. There is a tag 'finance'. It has a short text attached to it which might help you find a better place for asking this question. – Thomas Oct 12 '15 at 18:32

1 Answers1

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Use the put call parity such as below:

$p+S_0 = c+\dfrac{X}{(1+r)^t}$

Synthetic call is c with market prices of put and stock

Synthetic put is p with market prices of call and stock

Synthetic stock is S with market prices of call and put.

where X is the strike price, t is time to maturity and r is the risk free rate.

Satish Ramanathan
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