Explanation

According to put-call parity, the relationship between European call and put options with the same strike price and expiration date is:

C + PV(K) = P + S

Where:

• C = Price of call option
• P = Price of put option
• S = Current price of the underlying asset
• PV(K) = Present value of the strike price (bond)

Rearranging the put-call parity formula to solve for a long call position:

C = P + S - PV(K)

This means a long call position (C) can be replicated by:

1. Long the put (P)
2. Long the asset (S)
3. Short the bond (-PV(K))

Therefore, the correct replication strategy is: long the put, long the asset, and short the bond, which corresponds to option C.

Why the other options are incorrect:

• Option A (long put, short asset, long bond): This would give us P - S + PV(K), which is not equal to C.
• Option B (short put, long asset, short bond): This would give us -P + S - PV(K), which is not equal to C.

This question tests understanding of put-call parity and how to synthetically create option positions using other instruments.