Groundlearn / Glossary / Put–call parity
Put–call parity
A CFA and FRM term, defined in plain English with the distinction examiners test.
What it means
The no-arbitrage relationship linking a European call, a European put, the underlying and a risk-free bond of the same strike and expiry.
The exam angle
Rearranging it constructs synthetic positions, and a violation is a textbook arbitrage. European options only.
Where it appears in the syllabus
- DerivativesCFA Level I · exam weight 6–9% · Forwards, futures, swaps, options and arbitrage-free pricing.
- Valuation & Risk ModelsFRM Part I · exam weight 30% · VaR and ES, option valuation, bond risk, stress testing, credit and op risk.
Related terms
- Black–Scholes–Merton modelA closed-form model for European option prices, assuming lognormal prices, constant volatility and continuous…
- Call optionThe right, without the obligation, to buy an asset at the strike price by expiry.
- DeltaThe change in an option’s value for a small change in the underlying price.
- Lognormal distributionThe distribution of a variable whose natural logarithm is normally distributed.
- Put optionThe right, without the obligation, to sell an asset at the strike price by expiry.
- Basis riskThe risk that a hedge and the exposure it hedges do not move together, leaving a residual.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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