Consider both a European put and call that expire in December and have strike prices of $25. The no-arbitrage relationship between this put and call is referred to as which one of the following?
A)intrinsic equilibrium
B)Euro match
C)bull-call spread
D)butterfly spread
E)put-call parity

Question

Quizplus · Accepted Answer

The no-arbitrage relationship between a European put and call with the same strike price and expiration date is referred to as put-call parity. This relationship states that the price of a European call option minus the price of a European put option with the same strike price and expiration date equals the stock price minus the present value of the strike price. In other words, C - P = S - PV(K). This relationship is essential for pricing options and can ensure that no arbitrage opportunities exist in the market.

Consider Both a European Put and Call That Expire in December