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  • Thursday, June 19, 2025
  • The Financial Encyclopedia
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Derivatives

  Derivatives   |   Terms
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  • February 25, 2022
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Boundary Conditions

The constraints which are posed on the value of an option such as those determining the relationships among an option’s underlying price, intrinsic value, and forward intrinsic value. Arbitrage opportunities arise if boundary conditions cease to hold. In this case, traders can make risk-free profits by buying cheap and selling dear. The boundaries are set as equations that describe an option’s minimum and maximum values under varying circumstances.


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