A Wall Street trading firm is using the Merton (1976) jump-diffusion model to price their index options.They are pricing European calls and then using put-call parity to compute the prices of puts.The problem with this is
A) Put-call parity is not valid for models with jumps.
B) Put-call parity works only if jumps are symmetric.
C) Put-call parity works with jumps only if there are no dividends.
D) Nothing---there is no problem with using put-call parity even if there are jumps in the stock price.
Correct Answer:
Verified
Q2: If the volatility of a stock is
Q3: A Wall Street trading firm is
Q4: In the preceding question,the state price in
Q5: For the same problem in the preceding
Q6: The GARCH process for stock prices has
Q8: In comparing the ARCH
Q9: The Black-Scholes model is time-inconsistent in the
Q10: A stock has a probability of
Q11: The constant elasticity of variance (CEV)Ito
Q12: Two stocks A and B both have
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents