# put-call parity and formulas for option payoffs

Posted 12-29-2008 at 12:03 AM by Marid Audran

Updated 01-15-2009 at 01:22 PM by Marid Audran (changing to a more commonly used notation)

Updated 01-15-2009 at 01:22 PM by Marid Audran (changing to a more commonly used notation)

Basic material here. I was reading McDonald's textbook and did not see things described in exactly this way.

Define the function

Define the function

.Say K is the strike price of an option and X is the spot price of the underlying asset at expiration. Then here are the payoffs:

- Long call:
- Short call:
- Long put:
- Short put:

.So the price of long call plus short put must equal the price of a forward contract (zero) plus PV(F-K).

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