Option Replication Using Put-Call Parity (2025 Level I CFA® Exam – Derivatives – Module 9)

Learn Option Replication Using Put-Call Parity for the CFA® Level I exam. This Derivatives lesson explains the put-call parity relationship, no-arbitrage pricing, protective puts, fiduciary calls, synthetic calls, synthetic puts, and option replication. You'll also learn how put-call parity can be applied to model firm value, understand the relationship between equity and debt, and extend put-call parity to forward contracts. The lesson includes worked examples and key concepts to help you prepare for the CFA Level I exam. What You'll Learn: ✓ Understand the put-call parity relationship for European options ✓ Identify the conditions required for put-call parity ✓ Understand the relationship between stock, options, and credit markets ✓ Explain protective puts and fiduciary calls ✓ Compare the payoffs of protective put and fiduciary call strategies ✓ Apply the no-arbitrage principle to put-call parity ✓ Derive synthetic call and synthetic put positions ✓ Calculate option premiums using put-call parity ✓ Apply put-call parity to worked examples ✓ Understand how equity can be viewed as a call option on firm assets ✓ Apply put-call parity to model firm value ✓ Understand the relationship between shareholders and bondholders ✓ Explain how credit risk affects the put option component of firm value ✓ Understand how risk affects shareholder value in a leveraged firm ✓ Apply put-call parity when a forward contract replaces the underlying asset ✓ Calculate option values using put-call forward parity Chapters: 00:00 Introduction to Option Replication Using Put-Call Parity 01:27 Learning Objectives and Put-Call Parity Overview 01:53 Understanding the Put-Call Parity Relationship 03:20 Protective Put and Fiduciary Call 05:07 Stock, Options, and Credit Markets 06:13 No-Arbitrage and Market Equilibrium 07:35 Conditions for European Put-Call Parity 08:24 Deriving Put-Call Parity 09:09 Fiduciary Call vs. Protective Put 10:17 Comparing Portfolio Payoffs 12:06 Protective Put Payoffs 13:32 Fiduciary Call Payoffs 14:33 Equal Payoffs and Put-Call Parity 15:01 Synthetic Call and Put-Call Parity 16:21 Synthetic Put 17:31 Worked Put-Call Parity Example 19:27 Applying Put-Call Parity to Firm Value 20:07 Modeling Firm Value 21:23 Leveraged Firm Example 24:21 Equity as a Call Option 26:00 Solvent vs. Insolvent Firms 27:46 Applying Put-Call Parity to Firm Value 29:07 Equity Value and Firm Value 30:32 Credit Risk and the Put Option 31:45 Equity as a Call Option on Firm Assets 33:52 Exam Preparation and Practice 34:29 Put-Call Forward Parity 35:25 Synthetic Protective Put 36:42 Put-Call Parity with Forward Contracts 37:02 Worked Forward Parity Example 38:02 Final Review Prepare for the CFA Level 1 Exam with AnalystPrep Get access to CFA Level 1 study notes, video lessons, practice questions, mock exams and other exam preparation resources: CFA Level I:https://analystprep.com/shop/cfa-leve... CFA Level II:https://analystprep.com/shop/cfa-leve... CFA Level III:https://analystprep.com/shop/cfa-leve... Follow AnalystPrep for more CFA® and finance education content: Facebook:   / analystprep   Instagram:   / analyst_prep   LinkedIn:   / analystprep   #CFA #CFAExam #CFALevel1 #CFA2025 #Derivatives #PutCallParity #OptionReplication #SyntheticOptions #SyntheticCall #SyntheticPut #ProtectivePut #FiduciaryCall #NoArbitrage #OptionPricing #AnalystPrep