What does it mean? I am not getting the concept. could somebody please help? TIA. kochunnni
combo of call option and putting money in risk free asset to get the strike price for the call option.
it is used to describe put call parity and arb opportunities
Understanding option pricing seems to be a little tough area. Too much for a 5% of the syllabus.
You are going to need it for level II. Might not be a good use of time at this point, but it will come back to haunt you later.
getterdone Wrote: ------------------------------------------------------- > it is used to describe put call parity and arb > opportunities Not really…the definition of fudiciary is “held in trust”. Entering into a fiduciary call is a strategy that provides a guarantee of preservation of capital. Regardless of where the underlying finishes, the position will have a payoff of either X or S_T. Downside risk is eliminated.
fidic call=protective put if this relationship does not hold there is an arb opporunity. If you are writing level 1 in june make sure you know this. I have seen alot of Q’s regarding what the arb profit of put-call parity. Also helps describe relationships such as: c+x/(1+RFR)^= S+p c= S+p-x/(1+RFR)^t etc etc etc
getterdone Wrote: > If you are writing level 1 in june > make sure you know this. I’m not. Already passed it. Yes…the fiduciary call is used to construct put-call parity, but the original question above was not asking that. The question was to describe the concept. The fiduciary call is a capital preserving strategy, and that is it…nothing more.
this is true wyantjs, guess I was just looking @ the question inthe wrong light, thanks for the clarification and good luck on L 11
and the same to you…