Schweser Exam 1PM. Question 113 asks for the price of a put and question 114 asks for the value of a put. However, both questions are done with the same exact formula (solve for put using put-call parity). So is there a difference between price and value? I always believed that the price of an option is found with put-call parity and the value is found with binomial models/backwards induction. So the issue is just with the term value. Am I wrong or is schweser?
value is the intrinsic value by using backwardinduction (theoretic) price is the price it is being sold for on the market. they can deviate from each other just as price of a stock can be different from value of stock. cheers joe
you could interpret value as what the price ‘should be’ and so they can be used interchangably to a certain extent. On the exam, any time it is possible to use put-call parity to solve (for either price or value), I would go ahead and use it…we know it has to work b/c of no-arb principle.
ok so option value is the fundamental/theoretical price and option price is the market price? basically, can you think of this as we do for bonds (there is a value of a bond found with a binomial tree and a market value of a bond which is its price in the market)