The relationship between European put and call options that have the same underlying asset, expiration, and strike prices is demonstrated by put-call parity.
According to this put-call parity theory, the price of a call option indicates a specific fair price for the matching put option with the same strike price and expiration, but the cost of a put option is the exact opposite.
Since American options can be exercised before to expiration, they are free from put-call parity. There are opportunities for arbitrage when the put-call parity is disturbed.
The equation C + PV(x) = P + S can be used to identify the put-call party.
where:
C stands for the European call option's cost.
PV(x) equals the strike price's current value, discounted from its value on the expiration date at the risk-free rate.
P=Price of the European
Put S=Spot Price or the underlying asset's current market value
To learn more about put-call parity, please refer:
https://brainly.com/question/15508400
#SPJ4
