What Is the Lowest Possible Value of a European Put

question 14

Multiple Choice

What is the lowest possible value of a European put?

• A)Max(0,X - S₀)
• B)X(1 + r)^-T
• C)Max[0,S₀ - X(1 + r)^-T]
• D)Max[0,X(1 + r)^-T - S₀)]
• E)none of the above

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Definitions:

Adverse Selection

A situation in economics and insurance where a party makes a decision based on information not available to the other party, leading to an imbalanced or unfair agreement.

Salaried Salesman

A sales professional who is compensated with a fixed salary rather than or in addition to commissions based on sales volume.

Monitoring

The process of systematically observing, checking, and recording activities or data to ensure desired outcomes are being met.

Shirking

The behavior of avoiding work or responsibilities, often surreptitiously.