A relationship between the put and call prices of European options provided that the arbitrage-free condition holds. It is expressed by the following formula:
E + C = U + P,
where E is the present value of the exercise price, C is the value of a call, U is the value of the underlying, and P is the value of the put. The formula assumes that the put and call have the same exercise price and the same time period to expiry.
Subjects: Financial Institutions and Services.