Editing Put–call parity (section)

{{Short description|Concept in financial mathematics}}
{{Multiple issues|
{{More citations needed|date=April 2022}}
{{Technical|date=April 2022}}
}}
In [[financial mathematics]], the '''put–call parity''' defines a relationship between the price of a [[European call option]] and [[European put option]], both with the identical [[strike price]] and expiry, namely that a portfolio of a long call option and a short put option is equivalent to (and hence has the same value as) a single [[forward contract]] at this strike price and expiry. This is because if the price at expiry is above the strike price, the call will be exercised, while if it is below, the put will be exercised, and thus in either case one unit of the asset will be purchased for the strike price, exactly as in a forward contract.

The validity of this relationship requires that certain assumptions be satisfied; these are specified and the relationship is derived below. In practice transaction costs and financing costs (leverage) mean this relationship will not exactly hold, but in [[Market liquidity|liquid markets]] the relationship is close to exact.