Put–Call Parity

What is put–call parity?

Answer

Put–call parity tells us the no-arbitrage relationship between European call options and European put options on the same underlying, strike and maturity (with no dividends). More specifically it states that

\[ C - P = S - K\,e^{-rT}, \]

meaning that the difference between the call and put option price is equal to being long on the stock and short on a zero-coupon bond with face value of the strike.

Put-call parity is model invariant.

Back to collection