## Upper & lower bound

AMITAG1990
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Joined: Sat Sep 22, 2012 12:35 pm

### Upper & lower bound

Consider an American Call and a Put option of 4-months duration, written on an underlying stock currently priced at \$40. The Strike price for the options is \$35 and the risk-free rate is 4.5% (continuously compounded). Determine the Lower and Upper pricing bounds for the difference between the prices of the Call and Put options.

a. (5.21, 40)

b. (5, 5.21)

c. (34.48, 40)

d. (0.21, 34.48)

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swarnendupathak
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Joined: Mon Sep 17, 2012 11:06 am

### Re: Upper & lower bound

What i guess is that the question is asking for difference between upper bound of CALL & PUT & lower bound of CALL & PUT.
So, if above is true, then apper bound of CALL & PUT is So & X respectively, which is 40-35 = 5.
Lower bound of Call is 5.52 & PUT is 0, hence the closer value is option B.
If its wrong then please correct me...

Swarnendu

AMITAG1990
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Joined: Sat Sep 22, 2012 12:35 pm

### Re: Upper & lower bound

thanks swarnendu.. yes i was just looking for the interpretation of que.

content.pristine
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### Re: Upper & lower bound

Good Interpretation Swarnendu!