What is put-call parity?

What is put-call parity?

Approach: Derive from no-arbitrage using portfolio replication.

C - P = S - Ke^{-rT} for European options on non-dividend paying stock. C: call price, P: put price, S: stock price, K: strike, r: risk-free rate, T: time to expiration.

Follow-up: How does it change with dividends?

Key concepts: replication, no-arbitrage, European options.