CFA Level I · CFA Level I Exam · Pricing and Valuation of Options
A European call option and a European put option on the same non-dividend-paying stock have the same strike price and expiration date. According to put-call parity, the call price minus the put price is most likely equal to:
The call price minus the put price equals the stock price minus the present value of the strike price. This follows from put-call parity, c + PV(X) = p + S, which holds for European options on a non-dividend-paying stock with the same strike and expiry.
- Athe present value of the strike price minus the stock price
- Bthe stock price minus the present value of the strike priceCorrect
- Cthe stock price minus the strike price
Explanation
Put-call parity states c + X/(1+r)^T = p + S0, so c - p = S0 - X/(1+r)^T. The third option ignores discounting of the strike, and the first has the sign reversed.
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