i could swear my question was on euro put (or i’m losing my mind)
there was a lot of different questions about options in the AM part, i was actually very surprised as to the amount of questions about options, considering that there is only two chapters that touch the subject… i was surprised there was nothing on call put parity, or maybe there was but then i must have gotten it wrong LOL
FisherSU Wrote: ------------------------------------------------------- > i could swear my question was on euro put (or i’m > losing my mind) It is possible that it was Euro put…are u in Asia pac I swear that some of the questions being discussed here, I had the exact opposite thing tested on the exam…I wrote in Melbourne, Australia
nope, i did mine in Toronto
wrote in US I’m confident that what the question asked was for the lower bound of an american put. I choose zero. Isn’t the lower bound of any put 0? There’s certainly no PV involved, it not being a european put.
American put for sure, I remember thinking PV is everything BUT an american put.
I put 0 also, I know the min value american put >= Max(0, X-S). For some reason the other answers didn’t seem worded like this. Was intrinsic value an answer choice, it think they all had PV somewhere in them?
Yes I picked X-S, no present value. I remember that there was no choice that didn’t have the PV indication. But it’s fine, PV is lower anyways. The bit of intrinsic value terminlogy tripped me up too.
I picked with present value, but now I know that I am wrong… I was debating between intrinsic value and pv of x. errr!!! If you recall definition of intrinsic value is whatever value you get at the exercise of the put depending on the price of the underlying, hence it could be either 0 or X-S… Therefore intrinsic value is the answer
OOOO so intrinsic value was one of the answer? I picked intrinsic value then, I remember picking intrinsic as one answer now that you mention it.
didnt it say something like PV of intrinsic value…
didnt it say something like PV of intrinsic value…or not give 0 in that answer as well??
intrinsic value!
i am not so sure but i remember seeing European put in SG. i put 0 i believe.
yup … intrinsic value was the answer… bcoz min value for american put is: max[0, x-s], no present value in american options as it can be exercised any time and for europeans we have wait till maturity thats we take present value of strike price… so the last 2 were false about 0, it is only in the case when strike is less than current price, so 0 cannot be determined from the data in the question, but intrinsic value is max[o,x-s], as option pay off cannot be less than 0 and cannot be higher than x-s bcoz you can sell the stock or whatever underlying in the market… (something like that i dont exactly remember) so that was it intrinsic value
Intrinsic value can be negative. So 0 is the minimum value a put option can be.
No it can’t. Intrinsic value is the answer for sure and for certain.
I think I faced the Q for lower bound of call? Did anyone else? Test 3030 and 3131
The lower bound would be either 0 or - (present value of the premium paid in the past while purchasing the put). The later is not in the answers … and so the max that one would lose with a put is zero which is the answer I guess. additionally. the Max he could get is if the stock price goes to zero …entire price of the stock - the PV or the premium…
JoeyDVivre Wrote: ------------------------------------------------------- > No it can’t. Intrinsic value is the answer for > sure and for certain. JoeyD if you say the answer is intrinsic value, then I believe it is intrinsic value, which sucks because that means was wrong. But help me out here, my understanding is that intrinsic value of an American put is pretty straight forward, X-S. So if a stock is trading at 10 and the put excise price is 5, wouldn’t intrinsic value be -5? And that is why the min value of the put is bounded by MAX(0, intrinsic value)? Am I just confusing the terminology here? Is the definition of intrinsic value in this case MAX(0, X-S), not just X-S? Thanks.