Questions / Quant trading, Options & hedging
Put-call parity in a simple market
European call and put options share strike 100 and expiry. Spot is 100, the call costs 8, rates are zero, and there are no dividends. By put-call parity, what is the put price?
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Answer: 8 price
- At zero rates with no dividends, European put-call parity is C − P = S − K.
- Here S and K are both 100, so the right-hand side is zero.
- Therefore C = P, and the put must cost 8. The shared strike and expiry are essential to this comparison.
Interview shortcut. At the money with zero rates, parity says C = P.
Takeaway. Parity prices the difference between matched options.
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