TY - JOUR
T1 - FURTHER ANALYSIS OF THE PUT‐CALL PARITY IMPLIED RISK‐FREE INTEREST RATE
AU - Frankfurter, George M.
AU - Leung, Wai K.
N1 - Copyright:
Copyright 2016 Elsevier B.V., All rights reserved.
PY - 1991
Y1 - 1991
N2 - In this paper the put‐call parity implied riskless rate of borrowing and lending is re‐examined. Using a rigorous model, it is shown that, given the level of an observable proxy of the risk‐free rate of lending (T‐bill rates, for example), the put‐call parity provides an opportunity to borrow at rates substantially below the market rate of lending. This is especially true when high interest rates prevail. The major conclusion is either that American option prices may invalidate the parity, or that option markets are not as frictionless as one might wish.
AB - In this paper the put‐call parity implied riskless rate of borrowing and lending is re‐examined. Using a rigorous model, it is shown that, given the level of an observable proxy of the risk‐free rate of lending (T‐bill rates, for example), the put‐call parity provides an opportunity to borrow at rates substantially below the market rate of lending. This is especially true when high interest rates prevail. The major conclusion is either that American option prices may invalidate the parity, or that option markets are not as frictionless as one might wish.
UR - http://www.scopus.com/inward/record.url?scp=84986435935&partnerID=8YFLogxK
U2 - 10.1111/j.1475-6803.1991.tb00659.x
DO - 10.1111/j.1475-6803.1991.tb00659.x
M3 - Article
AN - SCOPUS:84986435935
SN - 0270-2592
VL - 14
SP - 217
EP - 232
JO - Journal of Financial Research
JF - Journal of Financial Research
IS - 3
ER -