Derive a put-call parity relationship between C1 and C2.

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Reference no: EM131460351

A digital (K, t) call option gives its holder 1 at expiration time t if S(t) ≥ K, or 0 if S(t) < K. A digital (K, t) put option gives its holder 1 at expiration time t if S(t) < k, or 0 if S(t) ≥ K. Let C1 and C2 be the costs of such digital call and put options on the same security. Derive a put-call parity relationship between C1 and C2.

Reference no: EM131460351

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