2. Formula meaning: the sum of the present value of the call option price C and the exercise price K is equal to the put option price P plus the current price S of the underlying securities.

3. Symbol explanation: T-t: How many days before the contract expires; The -r(T-t) power of e is the discount coefficient of continuous compound interest; Ke -r(T-t): k times e to the power of -r(T-t), which is the present value of k.

4, the derivation process:

Build two portfolios:

Combination a: European call option c, exercise price k, expiration time T-T ... cash account ke-r (t-t), interest rate r, when the option expires, it just becomes exercise price K.

Portfolio B: A European put option P with the same validity period and exercise price as the call option, plus a unit of underlying stock S.

According to the no-arbitrage principle, we deduce the situation of these two portfolios when they see the cycle.

When the option expires, if the stock price St is greater than K, Group A will exercise the call option C, spend the cash account K and buy the underlying stock with the stock price of ST, while Group B will give up the put option and hold the stock with the stock price of St.

Extended data:

1. Call options can be stock options, stock index options, foreign exchange options, commodity options, interest rate options, even futures contract options and swap contract options, because the transaction subject matter written in the option contract is different.

2. Call option allows the buyer to enjoy the right to buy a specific transaction object at the agreed price in the future without assuming corresponding obligations. When the market price is higher than "X", the option holder requires the issuer to fulfill the contract and buy foreign exchange at the price of "X".

When the market price is lower than "X", the buyer waives this right. The price of foreign exchange purchased by the option buyer will not be higher than "X", but in the forward transaction, regardless of the future market price, the transaction price is the agreed "X".

3. Call option gives its owner the right to buy assets at a specific execution price on or before a specific date. For example, a call option with an exercise price of $85 on Exxon stock 10 gives its owner the right to buy Exxon stock at $85 before or after the expiration of 10.

Each option contract can be used to purchase 100 shares, and its price is priced on the basis of one underlying stock. Option holders do not have to exercise this right. Only when the market value of the underlying asset exceeds the exercise price will the option holder exercise this right.

Baidu Encyclopedia-Call Option