If an Option Portfolio Generates a Zero Cash Flow at Expiration

question 24

True/False

If an option portfolio generates a zero cash flow at expiration and a positive cash flow today, an arbitrage opportunity is available.

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Definitions:

Spontaneous Recovery

Describes the sudden reappearance of a previously extinguished response after a period of no exposure to the conditioned stimulus.

Extinction Procedure

A behavioral technique in which a conditioned response is reduced or eliminated by discontinuing reinforcement of the behavior.

Spontaneous Recovery

The reappearance of a previously extinguished conditioned response after a period of time without exposure to the conditioned stimulus.

Learned Response

A behavior that has been acquired through conditioning or learning, as opposed to being a natural, instinctive reaction.