Put option on particular stock

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Assume that you want to buy a put option on a particular stock but put options are very thinly traded and have high transactions costs. The stock pays no dividends and assume all options are European style.

A) How would you use put-call parity to construct a synthetic put from a comparable call option, the stock, and a risk-free bond?Make sure and list the transactions.

B) Use a “Future Payoff Table” comparison to show that the future payoff (at option expiration) of your portfolio in a) above has the same payoff as buying an actual put.

Reference no: EM131956499

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