No, I am not comparing apple to oranges... This is options theory 101 and
you must've audited that class. There is zero impact to the arbitrage,
whether you're assuming Euro or Amer. exercise. BUT, you need to be
consistent, i.e., not contrasting an amer. TO a euro. option.
Same-strike amer. calls and puts must trade at identical volty, if not,
then
an arbitrage op****tunity, adjusted for carry, will result.
Same-strike euro. calls and puts must trade at identical volty, if not,
then
an arbitrage op****tunity, adjusted for carry, will result.
These are the most basic synthetic arbitrage assumptions...
I am NOT ignoring dividends, these would be obvious model inputs, GIGO.
Guess what? MSO options are american exercise, understand the concept?
Do
you understand the concept of bid and offer implied volty? Last trade
volty?
Your argument contrasting american and european exercise conventions is a
pathetic ploy to subvert the fact that you are absolutely clueless and
dead-wrong.
arb.
"Jefferson N. Glapski" <jeffersonWEARE@[EMAIL PROTECTED]
> wrote in
message news:bc023935f0546b9a4a26a9d854416a35@[EMAIL PROTECTED]
> "riskarb" <null@[EMAIL PROTECTED]
> wrote in message
> news:NlDRb.5190$BA2.2066@[EMAIL PROTECTED]
> > You phucking moron.. you wouldn't know an arb it fell from the sky,
> landed
> > on your face and wiggled. A same-strike put and call cannot trade at
> > different volty, it's simple conversion/reversal arbitrage. If they
do,
> > then it's a stale quote numb-nuts. You massively overpaid for your
> > education.
>
> Calls and puts (with same strike and tenor) most certainly do trade at
> different volatilities.
>
> 1. Your "arb" depends on those puts and calls being European calls and
puts.
> They have these things called American calls and puts.
>
> An American put is worth strictly more than a European put.
>
> Proof: assume otherwise
>
> Since a perpetual European put is easily shown to be worth zero, a
perpetual
> American put must be worth zero.
>
> But this is a nonsense conclusion since an American style put must not
> decrease in value as the time to expiration increases. The premise is
wrong,
> so under a no-dividend assumption, the American put value P is
> strictly greater the European put value p.
>
> Hence P > p = C - S + K e^(-r T).
>
> In words, the American put is *strictly larger* than the value given by
the
> put-call parity relation.
>
> For more details see: R.C. Merton, "Theory of Rational Option Pricing",
> (Bell J. of Economics and Mgt. Science, 4, 1973, 141-183.)
>
> 2. You ignore dividends.
>
> 3. You ignore the fact that put call parity is model independent. That
is
to
> say, put call parity holds regardless of any option model. Implied vols,
> OTOH, do not exist without the presence of an option pricing model.
>
> 4. You ignore things like transactions costs, the absence of risk free
> rates, the fact that lognormal probability distributions aren't usually
> realized and the fact that volatility is not constant.
>
> 5. You have no idea how much I paid for my education.
>
> Thank you for your participation in zero-sum markets. I appreciate it.
My
> children appreciate it.
>
> --
> Jefferson N. Glapski
> http://www.glapski.com
> They put on college football's most distinctive uniforms, thinking about
> those before them. The walk-ons, the All-Americans, the Legends who made
> sure to uphold the tradition... They are the black shoes, white helmets
and
> plain uniforms of one of America's most successful programs. They are
> heroes, they are winners....they are Penn State football.
>
>
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