Barrier option put call parity trade


Parity trade put option call barrier


This article does not cite any sources. Please help improve this article by adding citations to reliable sources. An important principle in options pricing is called a put-call parity. It says that the value of a call option, at one strike price, implies a certain fair value for the corresponding put, and vice versa. The argument, for this pricing relationship, relies on the arbitrage opportunity that results if there is divergence between the value of calls and puts with the same strike price and expiration date.

Arbitrageurs would step in to make profitable, risk-free trades until the departure from put-call parity is eliminated. Knowing how these trades work can give you a better feel for how put options, call options and the underlying stocks are all interrelated. If the prices of the put and call options diverge so that this relationship does not hold, an arbitrage opportunity exists, meaning that sophisticated This article does not cite any sources.

These hedging strategies only involve trading at a few times during the o. Carr and ChouWe show how several complex barrier options can be hedged using aportfolio of standard European options. Since rolling, ratchet,and lookback options can be barrier option put call parity trade into a portfolio of barrier options, our hedging results also apply.




Parity trade put option call barrier

Barrier option put call parity trade


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