To compute the value of a put using the Black-Scholes option pricing model, you:
A) assume the equivalent call is worthless and then apply the put-call parity formula.
B) have to compute the value of the put as if it is a call and then apply the put-call parity formula.
C) subtract the value of an equivalent call from 1.0.
D) subtract the value of an equivalent call from the market price of the stock.
E) multiply the value of an equivalent call by e−ʳᵗ.

Question

Quizplus · Accepted Answer

To compute the value of a put using the Black-Scholes option pricing model, you have to compute the value of the put as if it is a call, by using the put-call parity formula. This is because the inputs for the Black-Scholes model are based on call options, not put options. Therefore, using put-call parity allows you to calculate the value of the put option based on the same inputs used for call options. Once you have the value of the equivalent call option, you can use put-call parity to calculate the value of the put option.

To Compute the Value of a Put Using the Black-Scholes