Solve X-(S+P-C)E^RT+D*E^RT=0 and Isolate C

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Discussion Overview

The discussion revolves around the algebraic manipulation of the equation X-(S+P-C)E^RT+D*E^RT=0 to isolate the variable C. Participants explore various approaches to rearranging the equation, while also addressing potential errors and clarifying the meaning of the variables involved.

Discussion Character

  • Mathematical reasoning
  • Debate/contested
  • Homework-related

Main Points Raised

  • One participant suggests rearranging the equation to isolate C, leading to the expression C = X/E^(RT) + D - S + P.
  • Another participant corrects this by noting the need for a negative sign, proposing C = - (X/E^(RT) + D - S + P).
  • A later reply raises a question about the consistency of the variable T in the equation, suggesting that there may be two different T's being used.
  • One participant provides specific values for the variables involved and expresses difficulty in obtaining a correct answer, indicating that they are getting a negative number for C.
  • Another participant requests clarification on the physical significance of the equation and the parameters, questioning why C cannot be negative.
  • Further clarification is provided regarding the context of the equation, linking it to the concept of put-call parity in options trading.
  • A participant points out an error in a previous post regarding the signs in the equation, suggesting that the correct formulation should include a negative sign for P.
  • One participant acknowledges a mistake in their algebra and provides a revised expression for C, correcting the earlier errors.

Areas of Agreement / Disagreement

Participants express differing views on the correct formulation of the equation and the signs involved. There is no consensus on the final expression for C, and multiple competing interpretations of the variables and their significance are present.

Contextual Notes

There are unresolved questions regarding the definitions of the variables, particularly the different uses of T, and the implications of negative values for C in the context of options pricing.

qtiphife
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X-(S+P-C)E^RT+D*E^RT=0

How can I "isolate" C?

Thanks
 
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Assuming E^RT means E^(RT)...

X - (S + P - C)E^(RT) + D*E^(RT) = 0
<=>
X + D*E^(RT) = (S + P - C)E^(RT)
<=>
X/E^(RT) + D = (S + P - C).

Etc.
 
qtiphife,

Please post your questions only once. Triple posting is considered spam.

Thank you,
 
So would this be X/E(RT)+D-S+P= C

Man I am terrible with math.
 
qtiphife said:
So would this be X/E(RT)+D-S+P= C

Close. It should read:

X/E(RT) + D - S + P = -[/color]C

You forgot the negative sign[/color].

Divide both sides by -1, and you're done.
 
Oh yeah, and (rt) have different "T's". Thanks.
 
TIME OUT!

are you saying that in you original realationship that the T is not the same in the 2 expressions where it is used?

X-(S+P-C)E^RT+D*E^RT=0

Do you actually mean

[tex]x - (s+ p - C) e^{Rt} + D e^{RT} = 0[/tex]

If so then

[tex]C = x e^{-Rt} + D e^{R(T-t)} - S +P[/tex]
 
Guys, thanks a ton for your help, however I am still not getting the correct answer. Here are what the letters stand for:

X (Strike Price)= 50
S (Price of underlying) = 51
P (price of put)= 2.125
e (euler's number) = 2.781
R (rate of interest)= .08
t (time until options expire)= 31/365
T (time until dividend paid)= 25/365
D (dividend)=.46
C (price of call) = ?
I keep on getting a negative number. Any help would be much appreciated. Thanks.
 
Last edited:
It would be more helpful if you were to give the physical signifcance of the equation and parameters. Where did you get it? What is it for? Why can't C be negative?
 
  • #10
Sure,

This formula represents a stock's value with dividend due to the put call parity (kind of a pain to explain), but it has to do with buying or selling a stock (underlying) and buying (selling) and selling (buying) options in order to hedge your position in order to create "edge". X represents the strike price the options are bought, and P is the value of the put and C is the value of the call. I need to know the value of the call.

Please look at my previous post for all of the information.

Thanks!
 
Last edited:
  • #11
In your previous posts, you only talk of one T. Now there's two : t and T. So, which is which ?

One more thing. Everyone seems to have copied and repeated a line you wrote, with an uncorrected error :

Post #4 : "So would this be X/E(RT)+D-S+P= C"

Besides, the negative C correction, note that the LHS should really be X/E(RT)+D-S-[/color]P. Minus P, not plus.
 
  • #12
Opps! :redface:

You would and should come up with a negitive number, since I lost a negative sign! Try this:

[tex]C =S+P- x e^{-Rt} - D e^{R(T-t)}[/tex]


My apologies for the sloppy algebra!
 

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