Chapter 24
Pricing Put Options Using Put Call Parity
24.1 CHAPTER SUMMARY
In this short chapter, we show that a European put follows the same partial differential equation (PDE) that governs the price of a European call. Rather than solving this PDE all over again, we present a very useful result relating the value of a European call to the value of a European call. This result requires only very weak assumptions. We use the result to find a formula for the price of a European put.
In the previous chapter, we were able to derive the Black Scholes formula for the price of a European call option. What if we wanted to do the same for a European put option? Recall that a European put option gives its holder the right, without the duty, to sell an ...
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