imported>Doug Williamson |
imported>Doug Williamson |
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| Put-call parity theory links put and call option values via ‘no arbitrage’ market pricing assumptions and the related:
| | ''Energy - sustainable finance - green finance''. |
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| #option strike price
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| #theoretically risk-free rate of return.
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| | Solar CSP is an abbreviation for Concentrating Solar Power energy generation. |
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| So for example if the put option value, underlying asset price, strike price, time to maturity, and risk-free rate of return are known, then the call option value can be calculated using the put-call parity relationship:
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| Underlying asset price + Put value ''less'' Call value = Present Value of option strike price
| | Solar CSP systems use reflectors to focus and concentrate the sun's light energy, typically to raise the temperature of a heat-absorbing heat transfer fluid. |
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| Call value = Underlying asset price + Put value ''less'' Present Value of option strike price
| | The heat energy in the heat transfer fluid is then used in turn to generate electricity, for example through steam turbines. |
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| In the special case where the strike price of the options is equal to the forward price of the underlying asset, the Put value and the Call value are exactly equal.
| | Contrasted with Solar PV systems, which generate electricity directly. |
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| == Theoretically risk-free portfolios == | | == See also == |
| The no-arbitrage pricing relationship is based on the theory that combinations of market assets and liabilities with the same terminal cash flows, must also have the same present values (i.e. the same theoretical current market prices).
| | * [[Green finance]] |
| | | * [[Renewables]] |
| For example both the left side and the right side of the put-call parity formula represent portfolios with the same terminal value:
| | * [[Solar PV]] |
| | | * [[Sustainable finance]] |
| Underlying asset + Put ''less'' Call = Present Value of option strike price
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| The left side portfolio is built by buying the underlying asset, buying a put option, and selling a call option with the same strike price.
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| The theoretically risk free terminal value of this portfolio is the equal strike price of the two options.
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| The present value of this left side portfolio is the present value of the strike price.
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| | | [[Category:The_business_context]] |
| The right side portfolio is a deposit of cash.
| | [[Category:Corporate_finance]] |
| | | [[Category:Investment]] |
| This cash portfolio also produces a theoretically risk free terminal value, equal to the strike price of the options.
| | [[Category:Long_term_funding]] |
| | | [[Category:Identify_and_assess_risks]] |
| The current market pricing of these two portfolios must in theory be exactly the same.
| | [[Category:Manage_risks]] |
| | | [[Category:Risk_frameworks]] |
| If this relationship did not hold, there would be an arbitrage opportunity to buy the cheaper portfolio and sell the more expensive one, to earn an immediate risk free profit.
| | [[Category:Risk_reporting]] |
| | | [[Category:Financial_products_and_markets]] |
| Therefore market supply and demand pressures will act to quickly re-establish the no arbitrage pricing relationship, following any temporary pricing mis-alignments.
| | [[Category:Technology]] |
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| == See also ==
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| * [[Arbitrage]]
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| * [[Interest rate parity]]
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| * [[Option]]
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| * [[Parity]]
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| * [[Put option]]
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| * [[Risk-free rate of return]]
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Energy - sustainable finance - green finance.
Solar CSP is an abbreviation for Concentrating Solar Power energy generation.
Solar CSP systems use reflectors to focus and concentrate the sun's light energy, typically to raise the temperature of a heat-absorbing heat transfer fluid.
The heat energy in the heat transfer fluid is then used in turn to generate electricity, for example through steam turbines.
Contrasted with Solar PV systems, which generate electricity directly.
See also
