About this question
Hard · Options & Greeks · Quant Trader interview question · options, arbitrage, put-call-parity
Consider a European call option (C) and a European put option (P) on the same underlying asset (S) with the same strike price (K) and time to maturity (T). The risk-free interest rate is r. Put-call parity states: $C - P = S - K e^{-rT}$ . Suppose you observe the following market prices: Call option (C): 5 dollars Put option (P): 6 dollars Underlying asset (S): 100 dollars Strike Price (K): 100 dollars Risk-free rate (r): 0.05 (5% per annum, continuously compounded) Time to m