Put–call parity
Concept in financial mathematics / From Wikipedia, the free encyclopedia
Dear Wikiwand AI, let's keep it short by simply answering these key questions:
Can you list the top facts and stats about Put–call parity?
Summarize this article for a 10 year old
In financial mathematics, the put–call parity defines a relationship between the price of a European call option and European put option, both with the identical strike price and expiry, namely that a portfolio of a long call option and a short put option is equivalent to (and hence has the same value as) a single forward contract at this strike price and expiry. This is because if the price at expiry is above the strike price, the call will be exercised, while if it is below, the put will be exercised, and thus in either case one unit of the asset will be purchased for the strike price, exactly as in a forward contract.
This article has multiple issues. Please help improve it or discuss these issues on the talk page. (Learn how and when to remove these template messages)
|
The validity of this relationship requires that certain assumptions be satisfied; these are specified and the relationship is derived below. In practice transaction costs and financing costs (leverage) mean this relationship will not exactly hold, but in liquid markets the relationship is close to exact.