The relationship between the prices of the underlying share, a call option, a put option, and a riskless asset is referred to as the _____ relationship.

Question

Quizplus · Accepted Answer

The relationship between the prices of the underlying share, a call option, a put option, and a riskless asset is referred to as put-call parity. This relationship is based on the principle that a synthetic position (a combination of options and the underlying asset) should have the same value as the corresponding real position (just owning the underlying asset). Put-call parity is useful for determining the price of one option, given the price of another option and the price of the underlying asset.

The Relationship Between the Prices of the Underlying Share, a Call