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Principles of Corporate Finance (9th Edition)

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Problem

Put–call parity What is put–call parity and why does it hold? Could you apply the parity formula to a call and put with different exercise prices?

Step-by-step solution

Put-call parity: The basic relationship among the share price, call and put values, and the present value of the exercise price is called put-call parity. This concept is related to European call and put options. It does not hold good for American options.

The expression for Put-call parity is given as follows:

This expression requires that the strike price of call and put options should be the same. Hence, it cannot be applied to a call and put with different exercise prices.

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2021/6/2 Solved: Put–call parity What is put–call parity and why does it... | Chegg.com

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