It is May 18th. The spot rate is $1.5500/£ and 3-month interest rates are 2.00% (dollar) and 3.75% (sterling) quoted on a Libor basis. At what exercise price would 3-month european puts and calls have the same premia?
According to Put call parity
c+ K e ^ -(r-rf) T = p + S
where ^ denotes power, e denotes exponential function and
c= call premium
p= put premium
K = exercise price
S= spot ...
The solution uses Put call parity to calculate the exercise price at which 3-month european puts and calls have the same premia.