Dominance rule
Definition · Level 11 · Pricing toolkit
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If one position pays at least as much as another in every outcome, it must cost at least as much; if not, buy the cheaper one, sell the dearer one and lock in a riskless profit.
Example
A call can never be worth more than the stock, which pays at least as much in every outcome.
Where Tradecraft teaches it
Level 11 · Pricing toolkit, in the lesson “No-arbitrage bounds & early exercise”: Prices an option can never break, the limit cases, and when an American option is worth exercising early.
Related terms
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