An American put on a non-dividend paying stock is currently worth Rs200. The put expires in a

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An American put on a non-dividend paying stock is currently worth Rs200. The put expires

in a month's time and has a strike price of Rs500. The stock is currently worth Rs270.

(a) Do these prices allow arbitrage? Explain. If they do permit arbitrage, explain the

arbitrage transactions and determine the arbitrage profit that can be made.

(b) Can you repeat the same strategy if a one-month European put on the same stock

with a strike price of Rs500 is currently priced at Rs200? Explain your answer.

Posted Date: May 11, 2024 03:07 AM

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