Show that, if C is the price of an American call option on a futures contract when the

Chapter 18, Problem 18.19

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Show that, if C is the price of an American call option on a futures contract when the strike price is K and the maturity is T, and P is the price of an American put on the same futures contract with the same strike price and exercise date, then F0e rT K < C P < F0 KerT where F0 is the futures price and r is the risk-free rate. Assume that r > 0 and that there is no difference between forward and futures contracts. (Hint: Use an analogous approach to that indicated for 17.12.) 18.

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