Market Prices for European put and call options on ABC stock are as below:
C0 = $4.5
P0 = $6.8
Exercise Price, X =$70
Risk Free Annual Compounded rate r = 5%
Time to expiration T = 139 days
Current Stock Price S0 = $67.32
Determine Synthetic call, put and stock prices using parity relations and explain your observation.
Use the put call parity such as below:
$p+S_0 = c+\dfrac{X}{(1+r)^t}$
Synthetic call is c with market prices of put and stock
Synthetic put is p with market prices of call and stock
Synthetic stock is S with market prices of call and put.
where X is the strike price, t is time to maturity and r is the risk free rate.