Parity Price

Definition of 'Parity Price'


When the price of an asset is directly linked to another price. Examples of parity price are:

1. Convertibles - the price at which a convertible security equals the value of the underlying stock.
2. Options - when an option is trading at its intrinsic value ("trading at parity").
3. International parity - official rates for a currency in terms of other pegged currencies, typically the U.S. dollar.

Investopedia explains 'Parity Price'


Parity price is commonly used in the context of convertible securities and often referred to as "conversion parity price" or "market conversion price". It is the price an investor effectively pays to exchange or convert a convertible security into common stock and is equal to the price of the convertible security divided by the conversion ratio (the number of shares that the convertible can be converted into). Conversely, in the case of common stock, it is calculated by dividing market value by the conversion ratio.

In agricultural commodities, you can think of parity price as the purchasing power of a particular commodity relative to a farmer's expenses such as wages, interest on debt, equipment, taxes and so forth. The Agricultural Adjustment Act of 1938 states that the parity price formula is "average prices received by farmers for agricultural commodities during the last 10 years and is designed to gradually adjust relative parity prices of specific commodities". If the parity price for a commodity is not sufficient enough for a farm operator to support his or her family and operate the business then the government could step in and support prices through direct purchases, or the issuance of non-recourse loans to farmers.



comments powered by Disqus
Hot Definitions
  1. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  2. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  3. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  4. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  5. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
Trading Center