Assignment: Curtis- Call And Put Call Parity
Your firm has a well-respected economic research staff. The staff members have been successful in developing econometric models that can predict macroeconomic variables with a surprisingly degree of accuracy. The economic research staff would like to know which variables to monitor if options are ultimately used by the firm.
Write a 2-3 page document to Mr. Curtis explaining how the listed variables impact the prices of call options and what the associated theory is behind each relationship: 1. stock price 2. risk-free rate 3. exercise price 4. stock volatility
It is also important to recognize if put-call parity conditions are being met; if not, an arbitrage opportunity exists for the firm. In the following situation, identify whether or not an arbitrage opportunity exists if
• the call price = $1.15.
• exercise price = $22.50.
• time to expiration = 60 days.
• put price = $0.55.
• annual interest rate = 12%.
• the stock pays zero dividends.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.