#### Overview of this book

Python for Finance
Credits
Acknowledgments
www.PacktPub.com
Preface
Free Chapter
Introduction and Installation of Python
13 Lines of Python to Price a Call Option
Introduction to Modules
Statistical Analysis of Time Series
Index

## The put-call parity and its graphical representation

Let's look at a call with an exercise price of \$20, a maturity of three months, and a risk-free rate of 5 percent. The present value of this future \$20 price is calculated in the following code:

```>>>x=20*exp(-0.05*3/12)
>>>round(x,2)
19.75
>>>
```

In three months, what will be the wealth of our portfolio, which consists of a call on the same stock and \$19.75 cash today? If the stock price is below \$20, we don't exercise the call and keep the cash. If the stock price is above \$20, we use our cash of \$20 to exercise our call option to own the stock. Thus, our portfolio value will be the maximum of those two values, that is, the stock price in three months or \$20, `max(s,20)`.

On the other hand, how about a portfolio with a stock and a put option with an exercise price of \$20? If the stock price falls below \$20, we exercise the put option and get \$20. If the stock price is above \$20, we simply keep the stock. Thus, our...