Write the Basic Mathematical Formula for Put-Call Parity (Using P, C, S, K, T, R).
The basic mathematical formula for put-call parity is: C + PV(K) = P + S. Where C is the price of the European call option, P is the price of the European put option, S is the current spot price of the underlying asset, and PV(K) is the present value of the strike price K, discounted from the expiration time T at the risk-free rate r. The formula is often written as C – P = S – K e^(-rT).
Glossar
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.
Mathematical Formula
Pricing ⎊ Mathematical formulas are fundamental to the valuation of financial derivatives and the operation of decentralized protocols.
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.