FINANCIAL CALCULATORS
Put Call Parity Calculator
Verify the put-call parity relationship for European options pricing.
What is the Put Call Parity Calculator & How does it work?
The put-call parity is a fundamental principle in financial markets that establishes a relationship between the price of a call option, a put option, the underlying asset’s price, and the strike price. This parity ensures that these options are fairly priced relative to each other.
In the context of European options, the put-call parity formula is given by:
C + K e^{-rT} = P + S
C = Call option price
P = Put option price
S = Underlying asset’s current price
K = Strike price
r = Risk-free interest rate
T = Time to expiration (in years)
P = Put option price
S = Underlying asset’s current price
K = Strike price
r = Risk-free interest rate
T = Time to expiration (in years)
This formula helps investors and traders verify the fair pricing of options and make informed decisions.
Parameters
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Frequently Asked Questions
What is put-call parity?
Put-call parity is a principle that ensures call and put options are fairly priced relative to each other.
How do I use this calculator?
Enter the underlying asset price, strike price, risk-free rate, and time to expiration to calculate the put-call parity.
What is the formula for European options in put-call parity?
The formula is C + K e^{-rT} = P + S, where C is call option price, P is put option price, S is underlying asset's current price, K is strike price, r is risk-free interest rate, and T is time to expiration.
Why is put-call parity important?
Put-call parity helps ensure that options are fairly priced and can be used for arbitrage opportunities.
Can this calculator handle American options?
No, this calculator is specifically designed for European options. American options have different pricing dynamics.
What does the 'e' in the formula represent?
The 'e' represents Euler's number, approximately 2.71828, used to calculate continuous compounding interest.
How do I interpret the results from this calculator?
Compare the calculated values of call and put options to determine if they are fairly priced according to put-call parity.
Results are for informational purposes only and do not constitute professional advice.