Looked at this question, but it seemed to be assuming Intel. All the other questions involved installing newer macOS than the Host. I couldn’t find an Apple Silicon (M1) question installing older VMs.
Note: I’m current running a Monterey VM just fine. I just need one running Big Sur.
I used this command to create the VM:
/Applications/Parallels Desktop.app/Contents/MacOS/prl_macvm_create ~/Downloads/UniversalMac_11.6_20G165_Restore.ipsw ~/Parallels/macOS Big Sur.macvm --disksize 40000000000
When I start this VM I get this error:
Cannot retrieve the hardware model data.
.ipsw was downloaded from here.