<p>Of course there are differences.  Option contracts are like certificates of deposit and not like stocks or bonds.  They are only created when another party agrees to create them, which in practice requires a market maker.  The market maker, being a profit seeking firm, will require a bid-ask spread.  This spread guarantees the laws of probability hold because it fulfills the requirements of de Finetti's Coherence Principle.  The coherence principle is a weaker claim than the no arbitrage principle.  The coherence principle implies that the bookie cannot be gamed, but the players can be gamed by the bookie.  The no arbitrage is one directional.</p>

<p>If you assume no market maker, then you violate the most basic principles of economics.  It may make for simpler math, but there is no universe in which it would be a valid model.</p>

<p>See <a href="https://ssrn.com/abstract=2653255" rel="nofollow noreferrer">https://ssrn.com/abstract=2653255</a> for a discussion of this.</p>

CC BY-SA 3.0
2016-12-12T03:25:53.190Z
2016-12-12T03:25:53.190Z
Dave Harris
<p>Does a European put have different fair values at time 0 in long and short position? If so, could you explain to my why? Instinctively, I think the answer is that there is no difference, since evaluating options at fair value implies perfect economy with no arbitrage opportunity. </p>

CC BY-SA 3.0
2016-11-14T11:47:38.260Z
At time 0 meaning at expiry?
410 gone
<finance><financial-economics>
Put option valuation
Janey
# Put option valuation

(Asked by: username_0 on 2016-11-14)

Does a European put have different fair values at time 0 in long and short position? If so, could you explain to my why? Instinctively, I think the answer is that there is no difference, since evaluating options at fair value implies perfect economy with no arbitrage opportunity.

**Tags:** finance, financial-economics
> **Comments:**
> **username_1**: At time 0 meaning at expiry?  

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## 1 answers

### Answer by username_2 on 2016-12-12. Score: 1

Of course there are differences. Option contracts are like certificates of deposit and not like stocks or bonds. They are only created when another party agrees to create them, which in practice requires a market maker. The market maker, being a profit seeking firm, will require a bid-ask spread. This spread guarantees the laws of probability hold because it fulfills the requirements of de Finetti's Coherence Principle. The coherence principle is a weaker claim than the no arbitrage principle. The coherence principle implies that the bookie cannot be gamed, but the players can be gamed by the bookie. The no arbitrage is one directional.

If you assume no market maker, then you violate the most basic principles of economics. It may make for simpler math, but there is no universe in which it would be a valid model.

See <https://ssrn.com/abstract=2653255> for a discussion of this.


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