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1) According to the put-call parity, the following condition must be met for the

ID: 2655013 • Letter: 1

Question

1) According to the put-call parity, the following condition must be met for the call price to be equal to the put price, when all the option factors are the same:

A) Both call and put must be American style option

Both options must meet the lower-bound and upper-bound conditions

C) Exercise price should be equal to forward price

D) Put-call parity means put price and call price are the same

A) Both call and put must be American style option

B)

Both options must meet the lower-bound and upper-bound conditions

C) Exercise price should be equal to forward price

D) Put-call parity means put price and call price are the same

Explanation / Answer

Answer is C. This is because as per put-call parity equation:

c + Ke^(-rT) = p + So

Where,

c = call price

K = stirke price or the exercise price

r = risk-free rate

T = time to expiration

So = Spot price