CFA Online Video Tutorial: Option Contracts:Put Call Parity

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This Video lecture was recorded by Mr. Utkarsh Jain, during his live CFA Level I Classes in Pune (India). This video lecture covers following key area's:

1. put-call parity for European options

2. how put-call parity is related to arbitrage and the construction of synthetic options.

A fiduciary call (a call option and a risk-free zero-coupon bond that pays the strike price X at expiration) and a protective put (a share of stock and a put at X) have the same payoffs at expiration, so arbitrage will force these positions to have equal prices: c + X / (1 + RFR)T = S + p.

This establishes put-call parity for European options.