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put-call parity


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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.


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