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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.
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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.
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Search results for 'Parity Price'
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http://www.investopedia.com/articles/optioninvestor/05/011905.asp
... reading, see Trading The Odds With Arbitrage.) Conclusion A put-call parity is one
of the foundations for option pricing, explaining why the price of one ...
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http://www.investopedia.com/articles/stocks/05/052705.asp
... can be sold on the secondary market, and their market price and behavior is determined
by the conversion premium, the difference between the parity value and ...
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http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/absolute-relative-purchasing-power-parity.asp
... 4.26 Monetary Policy and Price Level Stability; 4.27 Expectations of Monetary Policy. ...
5.8 Purchasing Power Parity and Interest Rate Parity; 5.9 Foreign Exchange; ...
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http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/put-call-parity.asp
... 4.26 Monetary Policy and Price Level Stability; 4.27 Expectations of Monetary Policy. ...
5.8 Purchasing Power Parity and Interest Rate Parity; 5.9 Foreign Exchange; ...
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http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/effect-cash-flows-put-call-parity-lower-bounds.asp
Discusses the put-call parity and pricing bounds of an option. Reveals how
interest rate changes can affect the price of an option. ...
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http://www.investopedia.com/articles/optioninvestor/03/121003.asp
... Since the option is at parity, it will open at a fair value of 8, the new parity
price, and you will lose two points ($200) on the position. ...
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http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/relative-purchasing-power-parity.asp
... 4.26 Monetary Policy and Price Level Stability; 4.27 Expectations of Monetary Policy. ...
5.8 Purchasing Power Parity and Interest Rate Parity; 5.9 Foreign Exchange; ...
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http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/foreign-exchange-parity.asp
... 4.26 Monetary Policy and Price Level Stability; 4.27 Expectations of Monetary Policy. ...
5.8 Purchasing Power Parity and Interest Rate Parity; 5.9 Foreign Exchange; ...
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http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/purchasing-power-interest-rate-parity.asp
... 4.26 Monetary Policy and Price Level Stability; 4.27 Expectations of Monetary Policy. ...
5.8 Purchasing Power Parity and Interest Rate Parity; 5.9 Foreign Exchange; ...
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http://www.investopedia.com/articles/optioninvestor/04/120804.asp
... The December $65 calls should be trading at or very near to the parity price of
$5.70. However, you see that is being quoted at $5.20 on the bid. ...
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