If an Actual Put Option Premium Is Less Than What

question 160

True/False

If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted.

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Definitions:

Binding Price Floor

A price floor set above the equilibrium price, causing a surplus by legally preventing the price from falling to its natural equilibrium level.

Surplus

The situation in which the quantity supplied of a good exceeds the quantity demanded, often leading to a drop in prices.

Equilibrium Price

Equilibrium price is the market price at which the quantity of goods supplied is equal to the quantity of goods demanded.

Government Implementation

The process by which government agencies put laws, regulations, or policies into practice.