Question

Which of the following is true for American options? A. Put-call parity provides an upper and a lower bound for the difference between call and put prices B. Put call parity provides an upper bound but no lower bound for the difference between call and put prices C. Put call parity provides a lower bound but no upper bound for the difference between call and put prices D. There are no put-call parity results

Answer 1

The statement that holds true for the American Option is (A) Put-call parity provides an upper and lower bound for the difference between call and put prices

Explanation:

According to the Put-call parity concept when we hold the  short European put and long European call of similar class the return delivered is same as  holding one forward contract of the same underlying asset, that has the same expiration, forward price and which is equal to the strike price of the option

In financial management  put–call parity concept is used to define the  relationship that exist  between the price of a European call option and European put option, and both of them have identical strike price and expiry

The formula used for calculating  put call parity is

c + k = f +p

where (c) call price plus the (k) strike price of both options is equal to the futures price(f) plus the put price(p)