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Put-call parity
An option pricing concept according to which the price of a put option and the price of a call option must be in equilibrium when both options are European options on the same underlying, with the same exercise price and the same maturity.
Parity between the price of a put option and the price of a call option results from the symmetry between the two types of options. According to this concept, the holder of both a put option and the related underlying will obtain the same payoff as the holder of a call option on the same underlying, with the same exercise price and maturity. It is assumed that the exercise price not yet paid by the call option holder will earn the risk-free rate.
Synonyms and variations
- Call-put parity