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.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

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

The Put-Call Parity Theorem