Option Replication Using Put–Call Parity
Free CFA Level I lesson in Derivatives. 12 min read, ~1,726 words.
Spot put-call parity:. Long stock plus long put equals long call plus a risk-free bond paying X. Any one of the four instruments (call, put, stock, bond) is synthesized from the other three by rearranging the equation; synthetic stock is long call, short put, long bond. Parity is enforced by...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- option replication put-call parity
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