In early April 2022, Westpac is trading at $48.82. The $50 call option that expires in...
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In early April 2022, Westpac is trading at $48.82. The $50 call option that expires in 254 days is trading at a premium of $6.28 and the put option of the same series is trading at $6.34. These prices seem odd to you and you suspect that an arbitrage opportunity exists. You note the continuously compounded risk free rate is 3.2459%. What trade do you place and what is your expected profit from this trade? In early April 2022, Westpac is trading at $48.82. The $50 call option that expires in 254 days is trading at a premium of $6.28 and the put option of the same series is trading at $6.34. These prices seem odd to you and you suspect that an arbitrage opportunity exists. You note the continuously compounded risk free rate is 3.2459%. What trade do you place and what is your expected profit from this trade?
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Answer rating: 100% (QA)
To determine if an arbitrage opportunity exists we can compare the cost of replicating the 50 call option using a combination of the stock and riskfre... View the full answer
Related Book For
Money Banking And The Financial System International Edition
ISBN: 978-1292000183
2nd Edition
Authors: R. Glenn Hubbard ,Anthony P Obrien
Posted Date:
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