FMP 13. Properties of Options: LOs

a) Identify the six factors that affect an option’s price.

b) Identify and compute upper and lower bounds for option prices on non-dividend and dividend paying stocks.

c) Explain put-call parity and apply it to the valuation of European and American stock options, with dividends and without dividends, and express it in terms of forward prices.

d) Explain and assess potential rationales for using the early exercise features of American call and put options.