What Is the Put-Call Parity Principle in Options Trading?
Put-Call Parity is a fundamental principle that states a specific relationship must exist between the price of a European call option, a European put option, and the underlying asset, assuming they have the same strike price and expiration date. It is an arbitrage-free pricing relationship, meaning if the relationship is broken, a risk-free profit opportunity exists.
Glossar
Put-Call Parity
Relationship ⎊ Put-call parity describes a fundamental relationship between the price of a European call option, a European put option, and the underlying asset price, assuming they share the same strike price and expiration date.
Arbitrage-Free Pricing
Framework ⎊ Arbitrage-free pricing, within the context of cryptocurrency derivatives and financial engineering, represents a core tenet of market efficiency and risk management, particularly as decentralized finance (DeFi) protocols increasingly integrate with traditional financial instruments.
Parity
Equivalence ⎊ ⎊ Parity, within financial markets, fundamentally represents a state of equality between two or more assets, rates, or pricing models, often serving as a benchmark for arbitrage opportunities or risk-neutral valuation.