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.