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Put-call parity
       
 
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Put-call parity

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Put-call parity
The relationship between a European-style put Option and a European-style call Option on the same Underlying with the same Exercise price and maturity. Put-call Parity states that the payout profile of a Portfolio containing an asset plus a put Option is identical to that of a Portfolio containing a call Option of the same strike on that same asset (with the rest of the money earning the Risk-free rate of return). In practice, a put Option on, say, a stock index, can be constructed by shorting the stock and buying a call Option. The relationship means that traders are able to Arbitrage mispriced options.

See also Reversal
Posted by  Privatebanking.com
 
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