The Put-Call Parity Theorem

question 70

Multiple Choice

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.

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Definitions:

Deadweight Loss

Deadweight loss occurs when an economy's total welfare is not maximized, resulting from inefficiencies such as taxes or subsidies that distort market equilibrium.

Pure-monopoly Market

A market structure where a single firm has the exclusive control over the supply of a product or service, with no close substitutes available, allowing for price setting.

X-inefficiency

The difference between actual and minimum possible input costs, often occurring due to a lack of competitive pressure and inefficiencies in production.

Minimum Possible Average Cost

The lowest average cost at which a firm can produce its output in the long run, given its technology and factor prices.