An important assumption of put-call parity is that
A) both options may have different exercise prices but the same expiration dates
B) both options have the same exercise prices and the same expiration dates
C) both options will produce the same payoff on the stock as well as a risky bond
D) both options will produce the same payoff on the stock as well as another risky asset.

Question

Quizplus · Accepted Answer

Put-call parity assumes that both options have the same exercise prices and the same expiration dates. This assumption is fundamental to the derivation of the parity formula and is necessary for the equivalence between a long position in a call option plus a short position in a put option versus a long position in the underlying asset plus a short position in a risk-free bond. If the options have different exercise prices or expiration dates, the parity relationship would not hold. Options with different exercise prices or expiration dates could be used in other pricing models, but not in put-call parity.

An Important Assumption of Put-Call Parity Is That