Question: Consider the following portfolio:

1. Sell a call with the strike price of K;
2. Buy a put with the same strike price of K;
3. Buy a futures for F ₀ .

Notice that the short call and long put create a synthetic short futures position.

1. (8 pts) Using the following table to derive the riskless payoff of this portfolio at maturity (i.e., ignore the premium for now).

   	F T > K	F T < K
   Short Call
   Long Put
   Long Futures
   Portfolio Payoff

2. (7 pts) Assume the put and call premiums are P and C, respectively. What is the cost of this portfolio? Assume the remaining time to expiration is T and thus the continuous discounting factor is \({{e}^{-rT}}\) . Write up the put-call parity and explain the intuition.

Price: $2.99

Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document