The relationship between the prices of a European call, a European put, the underlying and a bond for the same strike and expiry. A breach would allow arbitrage.
Where you will meet it
Put-call parity comes up in 6 learning outcome notes across the FRM syllabus.
A few of them:
Properties of Options FRM Part I · Financial markets and products
“Put-call parity links European options with the same strike K and maturity T.”
Binomial Trees FRM Part I · Valuation and risk models
“Relationships that hold in the limit, such as put-call parity, can serve as a check.”
Volatility Smiles and Volatility Surfaces FRM Part II · Market risk measurement and management
“Put-call parity for European options on a non-dividend-paying asset says c + K × exp(−rT) = p + S0, with a dividend or foreign-rate term added where relevant.”
Trading Strategies FRM Part I · Financial markets and products
“By put-call parity, a protective put has the same payoff as a long call plus a zero-coupon bond, and a covered call the same as a short put plus a bond.”
GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.