Interview Question: Put or Call

Sample Question #7 (finance – options)

What’s put-call parity in option pricing? How does one derive this relationship? What crucial assumptions are necesary?

Tough case question: if you observe put-call parity not currently holding in the market, how do you make money off this observation? As you trade, what do you need to watch out for and what risks must you be aware of?

(Hint: know something about arbitrage?)

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