Forward plus risk free bond equal call plus risk free bond.
Is it correct formula ?
Why it contradicts with book ?
Forward plus risk free bond equal call plus risk free bond.
Is it correct formula ?
Why it contradicts with book ?
This is not the formula. The formula for put call parity is the following:
Stock + Put = Call + X (risk free zero coupon bond payoff)/ (1+r)t
Protective put = Fiduciary call
The forward version replaces the stock value with a forward contract:
F/(1+r)t + Put = Call + X (risk free zero coupon bond payoff)/ (1+r)t
Put = Call + (X-F)/(1+r)t
How can you replace So with Fo(T)/(1+r)t ? As per the curriculum
risk free bond + Forward = Asset
Would you please explain.
What’s the arbitrage-free forward price?
F0(T) = S0(1 + r)T
Solve for S0:
S0 = F0(T) / (1 + r)T