# Derivatives - Derivatives Section 2

>>>>>>>>Derivatives Section 2

• Option : A
• Explanation : Put-call parity is given by: long stock + long put = long call + risk-free zero coupon bond. Hence a risk-free zero coupon bond (a risk-free position) can be created as follows: long stock + long put + short call.

• Option : C
• Explanation : Put-call parity is given by: long stock + long put = long call + long bond. Hence a synthetic put can be created as follows: long call + long bond – short stock.

• Option : A
• Explanation : According to put-call-forward parity, the put price plus the value of a riskfree bond with face value equal to the forward price equals the call price plus the value of a risk-free bond with face value equal to the exercise price.

• Option : B
• Explanation : The up and down factors express how high and how low the underlying can go. Standard deviation does not appear directly in the binomial model, although it is implicit.

• Option : C
• Explanation : The actual probabilities of the up and down moves are irrelevant to pricing options.
Related Quiz.
Derivatives Section 2