Answer-first summary for fast verification
Answer: A short asset, a long call, and a long risk-free bond.
According to put-call parity, the payoff of a European put option can be replicated by a portfolio consisting of a short asset, a long call, and a long risk-free bond. This relationship is derived from the put-call parity formula: `P₀ = C₀ - S₀ + X / (1 + r)^T` where: - `P₀` is the put option price, - `C₀` is the call option price, - `S₀` is the asset price, - `X` is the strike price, - `r` is the risk-free rate, - `T` is the time to maturity. Option B correctly reflects this relationship, while Options A and C do not align with the put-call parity formula.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
According to put-call parity, the payoff of a European put option is equivalent to the payoff of a portfolio consisting of:
A
A long asset, a short call, and a long risk-free bond.
B
A short asset, a long call, and a long risk-free bond.
C
A short asset, a short call, and a short risk-free bond.