How Does a Dividend Payment Affect the Put-Call Parity Relationship? ▴ Learn

How Does a Dividend Payment Affect the Put-Call Parity Relationship?

A dividend payment complicates the Put-Call Parity relationship because it reduces the stock price on the ex-dividend date, affecting the terminal payoff. To adjust the parity formula, the present value of all expected future dividends must be subtracted from the current stock price.

The adjusted formula then maintains the no-arbitrage relationship between the four components.

How Does the Dividend Payment on a Stock Affect the Decision to Exercise an American Call Option Early?

Does the Dividend of the Underlying Asset Affect a Covered Call Strategy?

What Is the Put-Call Parity Relationship in Terms of Delta?

What Are the Borrowing Costs Associated with Short Selling a Stock?