When can put-call parity be applied?
I.Call and put have the same strike price
II.Call and put have the same time to expiration and are held until expiration
III.Call and put are created using the same underlying asset
IV.Call and put have the same premium
A)Only I is required
B)Only I and II are required
C)Only I, II, and III are required
D)I, II, III, and IV are required

Question

Quizplus · Accepted Answer

In order to apply put-call parity, all four conditions (I, II, III, and IV) do not need to be met. However, conditions I, II, and III are necessary for the understanding and application of put-call parity. Condition IV (the same premium) is not required, as the premiums of the call and put options do not need to be equal for put-call parity to hold. Therefore, choice C (only I, II, and III are required) is the best answer.

When Can Put-Call Parity Be Applied