Questions / Quant trading, Option pricing models
Put from parity
A European call struck at 100 trades at 7. The stock is 102, rates are zero and there are no dividends. What is the put struck at 100 worth?
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Answer: 5 USD
- Parity: C − P = S − K when rates are zero.
- 7 − P = 2, so P = 5.
Interview shortcut. C − P = S − K → P = 7 − 2.
Takeaway. A call minus a put is a forward.
In the app this has a follow-up where one thing about the setup changes. Try the follow-up.