What's new

YouTube T3-34: Put-call parity

Nicole Seaman

Chief Admin Officer
Staff member
Thread starter #1
We can synthesize stock ownership with a synthetic forward plus cash: S(0) = (c-p) + K*exp(-rT). That's put-call parity! My memorization mnemonic is "call plus cash equals protective put:" c + K*exp(-rt) = p + S(0)

David's XLS is here: https://trtl.bz/2IzY0ui

Hi, for my understanding why is it that put-call parity only holds for European style options and not American style as well. Obviously it is to do with the early exercise that American style options have when compared to European style, but can you be more specific on this please, I would hazard an educated guess to say that with American style options dividends can mean that it is profitable for early exercise and that this means that the equilibrium between put and call is no longer in place?