Put-call parity is valid for
A) Stock returns that are normally distributed, that is, stock movements are symmetric, but not otherwise.
B) American calls and puts when the stock pays no dividends.
C) European calls and puts when the stock pays dividends.
D) Stocks but not for currencies.

Question

Quizplus · Accepted Answer

Put-call parity is valid for European calls and puts when the stock pays dividends. This is because the presence of dividends creates an adjustment factor in the put-call parity equation that ensures parity between the value of a call option and the value of a put option. Put-call parity is not applicable to American options, as they can be exercised at any time prior to expiration, and it is not applicable to stock returns that are not normally distributed.

Put-Call Parity Is Valid for