Which of the following statement is true ? (i) Black-Scholes valuation model gives identical relationship for valuing options on dividend paying stocks or currencies. (ii) Black-scholes model can be used to work out exact values of American put options. (iii) The values of put and call options will be equal at a strike price which is equal to the forward rate for the same maturity.
Answers
Answer:
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Both (i) and (iii) in the given options are true.
Explanation:
Black Scholes model also known as a BSM is a mathematical way or mathematical approach for pricing a particular option contract BSM helps in eliminating the different variations that may occur overtime with the use of financial instruments such as stocks.
BSM is basically used to solve option price problems. This is why the particular statement is true.
Put call parity is basically a principal that will help in defining the relationship between the monetary amount of the price of European put options and call options which also belong to the same European call side that is consisting with the same asset strike price and an ending date.
Put call parity states that while holding a short put and long put or a long European class which belongs to the same class will deliver an equal amount to return as holding forward agreement. Therefore, the given statement is true.