Deck 9 – Put–Call Parity — Flashcards

Question

If $C_{0} + P V (X) > P_{0} + S_{0}$ , which side of put-call parity is overpriced?

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Answer

The fiduciary call side is overpriced.

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Question

If an option is at-the-money forward, what does put-call forward parity imply about call and put prices?

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Answer

If $F_{0} (T) = X$ , then $C_{0} = P_{0}$ .

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Question

What is the standard put-call parity for European options on a non-dividend-paying stock?

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Answer

$C_{0} + P V (X) = P_{0} + S_{0}$ .

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Question

Why must a fiduciary call and a protective put have the same price under no-arbitrage?

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Answer

They have identical expiration payoffs, so they must be priced equally.

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