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Explain the call-put parity relation and how it is justified

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Question -

1) Explain the call-put parity relation and how it is justified.

2) Black-Scholes-Merton formula uses five variables to calculate the price of call and put options. Explain each of these variables incorporated in the Black-Scholes-Merton formula. Show how the change in these variables affects the price of the option. Show how these variables are grouped to show the put-call parity relationship and suggest the condition in which there is an arbitrage opportunity.

3) What are the five variables which are incorporated in Black-Scholes-Merton Option Pricing Model (BSMOPM)? Explain with examples.

Reference no: EM133140698

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