STAT3905/3618 Chapters 4-5

What is the payoff of a short call with strike K?

Call option price is ___________ with its strike.

• increasing

• decreasing

A floor is composed of

• Long stock + Short call

• Short call + Long put

• Long stock + Long put

• Long call + short put

A cap is used to insure a short stock position by

• buying a call

• selling a call

• buying a put

• selling a put

Put-call parity applies to both European type and American type options.

• True

• False

A box spread has a constant payoff.

• True

• False

The price of a call is always higher than that of a put (on the same asset, same T and K).

• True

• False

The price of a put is bounded from above by

• the price of a call (same asset, K, T)

• PV of the strike

• spot price of the underlying asset

• 0

A long synthetic forward @ K has negative initial cashflow if K is greater than the no-arbitrage forward price.

• True

• False

A short synthetic forward can be constructed by

• Long call + Short put

• Short call + Long put

• Long call + Long put

• Short call + Short put