The put-call parity theorem
A)represents the proper relationship between put and call prices.
B)allows for arbitrage opportunities if violated.
C)may be violated by small amounts, but not enough to earn arbitrage profits, once transaction costs are considered.
D)All of the options are correct.

Question

Quizplus · Accepted Answer

The put-call parity theorem represents the proper relationship between put and call prices, and if violated, allows for arbitrage opportunities. However, the violation may be small enough where no arbitrage profits can be earned once transaction costs are considered. Therefore, all options are correct.

The Put-Call Parity Theorem