17. Why does the put-call parity relationship only come close to holding, but not predict the exact price?

 

  • In practice, excessive amounts of arbitrage weakens the strength of the relationship.
  • European-style options add complexities not present in American-style options.
  • Transaction costs cause the prices to be slightly different from the prediction.
  • The put-call parity relationship is a theoretical finding which cannot be expected to hold in practice.

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