Question, can’t these synthetic positions be created without buying the discount bond? What is the discounted bond used for to make it theoretically equal to European puts and stocks?
sort of, yes. All the bond is really doing is being used as a cash management tool to earn a specific rate and expire at a specific time. In theory this could just be a cash deposit with the same payoff, or any other financial instrument with the same profile.
As CPK alluded to, the important thing is to know the formula and why the forumla works. The discount bond is just how “X/(1+r)^t” would be implmented in the real-world (at least a theoretical “real world”…).