A portfolio containing a share of stock and a put option will have the same value as a portfolio containing a call option and the risk-free bond.

Question

Quizplus · Accepted Answer

This is known as the put-call parity theorem which states that if two portfolios have the same payoff at expiration, then they must have the same value today. The formula for put-call parity is: S + P = C + X/(1+r)^t, where S is the stock price, P is the put option price, C is the call option price, X is the exercise price, r is the risk-free interest rate, and t is the time to expiration. Therefore, it is true that a portfolio containing a share of stock and a put option will have the same value as a portfolio containing a call option and the risk-free bond.

A Portfolio Containing a Share of Stock and a Put