The lower bound of a put option premium is the greater of zero and the difference between the exercise price and the spot rate; the upper bound of a currency put option is the exercise price.

Question

Quizplus · Accepted Answer

The lower bound of a put option premium is indeed the greater of zero and the difference between the exercise price and the spot rate. However, the upper bound of a currency put option is the amount that the option buyer can receive if they exercise the option, which is the difference between the exercise price and the spot rate. Therefore, the upper bound of a currency put option premium cannot be the exercise price itself.

The Lower Bound of a Put Option Premium Is the Greater