Consider a European call option and a put option on a stock, each with a strike price K = $22 and each expiring in six months. The buying price is C = $3 and the selling price is P = $4. The risk-free interest rate is 10% per year and the current stock price is S0 = $20. 

Show how to create an arbitrage strategy and calculate arbitrage traders' profits.

Answer rating: 100% (QA)

To create an arbitrage strategy for the European call option and put option described above we can d... View the full answer