Explain the Concept of ‘Put-Call Parity’ in Options Pricing

Put-call parity is a fundamental principle that defines the relationship between the price of a European call option and a European put option with the same strike price and expiration date. It states that a specific portfolio combination of the underlying asset, a put option, and a call option should yield the same return as a risk-free asset.

If parity is violated, it creates an arbitrage opportunity.