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A European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. An American option on the other hand may be exercised at any time before the expiration date. For both, the payoff—when it occurs—is given by {(),}, for a call option
Put option: A put option gives its buyer the right, but not the obligation, to sell a stock at the strike price prior to the expiration date. When you buy a call or put option, you pay a premium ...
Holding a European put option is equivalent to holding the corresponding call option and selling an appropriate forward contract. This equivalence is called "put-call parity". Put options are most commonly used in the stock market to protect against a fall in the price of a stock below a specified price.
In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call option to exchange a security at a set price. [1]
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This makes put-call parity an essential concept in options trading. One of the most important principles in options trading is known as put-call parity. The term describes a functional equivalence ...
Put–call parity is a static replication, and thus requires minimal assumptions, of a forward contract.In the absence of traded forward contracts, the forward contract can be replaced (indeed, itself replicated) by the ability to buy the underlying asset and finance this by borrowing for fixed term (e.g., borrowing bonds), or conversely to borrow and sell (short) the underlying asset and loan ...
A European call valued using the Black–Scholes pricing equation for varying asset price and time-to-expiry . In this particular example, the strike price is set to 1. The Black–Scholes formula calculates the price of European put and call options. This price is consistent with the Black–Scholes equation.