According to put-call parity, a put option can be replicated by:
A) buying a call, selling the underlying stock, and lending at the risk-free rate.
B) selling a call, selling the underlying stock, and lending at the risk-free rate.
C) buying a call, buying the underlying stock, and borrowing at the risk-free rate.
D) selling a call, buying the underlying stock, and borrowing at the risk-free rate.
E) buying a call, selling the underlying stock, and borrowing at the risk-free rate.

Question

Quizplus · Accepted Answer

Put-call parity is a principle that defines the relationship between the price of European put options and European call options of the same class, that is, with the same underlying asset, strike price, and expiration date. According to put-call parity, a put option can be replicated by buying a call option, selling the underlying stock, and lending an amount at the risk-free rate. This combination creates a position that should have the same payoff as owning a put option.

According to Put-Call Parity, a Put Option Can Be Replicated