Reading 74: Options Replication Using Put-Call Parity
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Book 3: Derivatives
Last updated 1:26 PM on 7/3/25
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8 Terms
1
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What is the put-call parity comprised of?
fiduciary call
protective put
2
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Fiduciary Call
a combination of a call with exercise price K and a pure discount risk-free bond
3
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Protective Put
long the underlying and long a put option on the underlying
4
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What is the payoff if at expiration, S ≥ K?
K + (S – K) = S
5
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What is the payoff if at expiration, K ≥ S?
S + (K – S) = K
6
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Put-Call Parity formula
c + K(1+r)-T = S + p
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Synthetic Equivalents
rearranging the put-call parity to derive a specific variable
the securities on the right-hand side are the synthetic equivalents
8
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Put-Call Forward Parity
F0(T)(1+r)-T + p = c + K(1+r)-T
Note 
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