Put Call Parity Calculator Malaysia

Put-Call Parity Formula (Malaysia):

\[ Call = Put + Underlying - \frac{Strike}{(1 + r)^t} \]

Put (MYR):

MYR

Underlying (MYR):

MYR

Strike (MYR):

MYR

Interest Rate (r):

decimal

Time (t):

years

Call (MYR):

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1. What is Put-Call Parity?

Put-Call Parity is a fundamental principle in options pricing that defines the relationship between the price of European put and call options with the same strike price and expiration date. In the Malaysian context, it helps ensure no arbitrage opportunities exist in the options market.

2. How Does the Calculator Work?

The calculator uses the Put-Call Parity formula:

\[ Call = Put + Underlying - \frac{Strike}{(1 + r)^t} \]

Where:

\( Call \) — Price of the call option (MYR)
\( Put \) — Price of the put option (MYR)
\( Underlying \) — Current price of the underlying asset (MYR)
\( Strike \) — Strike price of the options (MYR)
\( r \) — Risk-free interest rate (decimal)
\( t \) — Time to expiration (years)

Explanation: The formula shows that a call option can be replicated by buying a put, buying the underlying asset, and borrowing the present value of the strike price.

3. Importance of Put-Call Parity

Details: Put-Call Parity is crucial for options traders to identify arbitrage opportunities, price options correctly, and construct synthetic positions in the Malaysian options market.

4. Using the Calculator

Tips: Enter all values in MYR. The interest rate should be in decimal form (e.g., 0.05 for 5%). Time should be in years (e.g., 0.5 for 6 months).

5. Frequently Asked Questions (FAQ)

Q1: Does Put-Call Parity apply to American options?
A: No, Put-Call Parity strictly applies only to European options as American options can be exercised early.

Q2: What if the calculated Call price differs from market price?
A: This may indicate an arbitrage opportunity or that the options are mispriced in the Malaysian market.

Q3: How do dividends affect Put-Call Parity?
A: For assets paying dividends, the present value of expected dividends should be subtracted from the underlying price.

Q4: What risk-free rate should I use for Malaysia?
A: Typically, the Malaysian Government Securities (MGS) yield with matching maturity is used.

Q5: Can I use this for currency options?
A: The formula needs adjustment for currency options to account for two interest rates (domestic and foreign).