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How do I solve this?

  1. Oct 6, 2004 #1
    X-(S+P-C)E^RT+D*E^RT=0

    How can I "isolate" C?

    Thanks
     
  2. jcsd
  3. Oct 6, 2004 #2
    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.
     
  4. Oct 6, 2004 #3

    Tom Mattson

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    qtiphife,

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

    Thank you,
     
  5. Oct 6, 2004 #4
    So would this be X/E(RT)+D-S+P= C

    Man I am terrible with math.
     
  6. Oct 6, 2004 #5

    Tom Mattson

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    Close. It should read:

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

    You forgot the negative sign.

    Divide both sides by -1, and you're done.
     
  7. Oct 6, 2004 #6
    Oh yeah, and (rt) have different "T's". Thanks.
     
  8. Oct 6, 2004 #7

    Integral

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    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]
     
  9. Oct 7, 2004 #8
    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: Oct 7, 2004
  10. Oct 7, 2004 #9

    Integral

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    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?
     
  11. Oct 7, 2004 #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: Oct 7, 2004
  12. Oct 7, 2004 #11

    Gokul43201

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    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-P. Minus P, not plus.
     
  13. Oct 7, 2004 #12

    Integral

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    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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