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c S0 –Ke -rT
p Ke -rT–S0
• If not true, buy put and buy stock
to make riskless profit
Suppose that
p= 10 S0 = 1000
T = 2 Months r =10%
K = 1040 D =0
c + Ke -rT = p + S0
rT
c S 0 D Ke
rT
p D Ke S0
c + D+ Ke -rT = p + S0
D is the present value of dividends during the life of
the option
PGDM/Financial Derivatives/Option Properties/ Sanjay
Dhamija
Learning
Factors influencing the option pricing
Lower and Upper bounds of call and put
options
Put –call parity
c + Ke -rT = p + S0