The fact that American put values may not equal the price implied by put-call parity is attributable to the possibility of what event?
A) changes in the dividend
B) early exercise
C) interest rate declines
D) interest rate rises

Question

Quizplus · Accepted Answer

The fact that American put values may not equal the price implied by put-call parity is due to the possibility of early exercise by the holder of the put option. This is because an American put option holder has the right to exercise the option at any time before expiration, while a European put option can only be exercised at expiration. Early exercise can result in higher put option values and therefore lead to a difference between the American put option value and the price implied by put-call parity. Changes in dividend, interest rates, and volatility can all affect put option values, but they do not directly result in a deviation from put-call parity.

The Fact That American Put Values May Not Equal the Price