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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Put Call parity relationship
Can i know in what case do we have to use this? just in case it comes in exam
It has to do with option pricing, particularly the Black Scholes model.
According to the formula you first compute the call option, and if the question asks to price a Put option, then you use the call option result and insert it in the put-call parity equation to compute the put option pricing.
Essentially using one formula output (call) as input in the second formula (put).
Rouri is correct (although she should not really be answering here because she is not the tutor 🙂 ).
If you are asked to calculate the value of a put option then you need to calculate the value of a call option first and then use the put-call parity equation to get the value of the put option.
However in some questions, the question itself has given a formula for calculating the value of the put option directly. If this formula is given in the question, then obviously you use that formula instead of put-call parity.