The Put-Call Parity relation for European put and call options having premiums PE and CE respectively,...

 

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The Put-Call Parity relation for European put and call options having premiums PE and CE respectively, same strike price X and exercise time T, and whose underlying asset does not pay any dividend is CEPE = S(0) - Xe-T, where S(0) is the underlying asset's value today and r is the risk-free asset interest rate compounded continuously. (i) Prove the Put-Call parity relation by assuming the No-Arbitrage Principle. The Put-Call Parity relation for European put and call options having premiums PE and CE respectively, same strike price X and exercise time T, and whose underlying asset does not pay any dividend is CEPE = S(0) - Xe-T, where S(0) is the underlying asset's value today and r is the risk-free asset interest rate compounded continuously. (i) Prove the Put-Call parity relation by assuming the No-Arbitrage Principle.

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To prove the PutCall parity relation using the NoArbitrage Principle we need to demonstrate that if ... View the full answer