Derivatives

Option Replication Using Put-Call Parity practice questions

Option Replication Using Put-Call Parity is part of CFA Level I Derivatives. Derivatives questions cover forwards, futures, swaps, options, replication logic, payoffs, and risk-transfer mechanics. Use this page to review the controlling ideas, then work through 5 questions with answer explanations and common traps.

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Easy

Derivatives

Option Replication Using Put-Call Parity

An investor holds a protective put consisting of one share of a non-dividend-paying stock and one European put option on that share. At the options' expiration, the payoff of this position is identical to the payoff of holding:

Moderate

Derivatives

Option Replication Using Put-Call Parity

An investor buys a European call and simultaneously sells a European put on the same non-dividend-paying stock, where both options have the same exercise price and the same expiration date. The combined position's payoff at expiration is most likely equivalent to that of:

Moderate

Derivatives

Option Replication Using Put-Call Parity

A non-dividend-paying stock trades at USD 48.00. A one-year European put option on the stock with an exercise price of USD 50.00 trades at USD 2.75, and the annual risk-free rate is 4.00%. Using put-call parity, the no-arbitrage price of the one-year European call option with the same exercise price is closest to:

Very Difficult

Derivatives

Option Replication Using Put-Call Parity

A non-dividend-paying stock trades at USD 60.00. One-year European options on the stock with an exercise price of USD 60.00 trade at USD 8.00 for the call and USD 4.50 for the put, and the annual risk-free rate is 5.00%. Based on put-call parity, the arbitrage strategy and the riskless profit captured today, per share, are best described as:

Difficult

Derivatives

Option Replication Using Put-Call Parity

One-year European options on a non-dividend-paying asset share an exercise price of USD 100.00. The call trades at USD 6.20, the put trades at USD 3.05, and the annual risk-free rate is 3.00%. Using put-call forward parity, the one-year forward price of the asset implied by these option prices is closest to: