Consider both a European put and call that expire in December and have a strike price of $25.The no-arbitrage relationship between this put and call is referred to as which one of the following?
A) intrinsic equilibrium
B) Euro-match
C) bull-call spread
D) butterfly spread
E) put-call parity

Question

Quizplus · Accepted Answer

The no-arbitrage relationship between a European put and call with the same underlying asset, strike price, and expiration date is referred to as put-call parity. This relationship states that the price of a call minus the price of a put is equal to the present value of the strike price, discounted to the expiration date. Or, put another way, the price of a put plus the present value of the strike price is equal to the price of a call. This relationship holds true under the assumption of no arbitrage opportunities and is an important concept in options pricing and trading.

Consider Both a European Put and Call That Expire in December