
Put–Call Parity 355
P R O B L E M 1 4 . 1 0
On March 5, SBI stock is selling at INR 2,350. Call and put options are available with an exercise price of INR 2,400
and the exercise date of April 28. e call is selling at INR 90, and the put is selling at INR 108.26. e risk-free rate
is 9%. Show how a borrowed position at the risk-free rate can be created using these available securities.
Solution to Problem 14.10
A position in borrowing at the risk-free rate can be replicated by the following strategy:
Write a put, short sell a stock, and buy a call
If we follow this strategy, the cash ow on March 5 will be:
Buy a put at the put price P = –INR ...