Khazanah Bhd shares are currently at RM15.00. 3-month call and put options with RM15.00 exercise price are
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Question:
Khazanah Bhd shares are currently at RM15.00. 3-month call and put options with RM15.00 exercise price are being quoted at RM0.75 and RM0.19 respectively. The Rf rate is 12% per annum.
(a)Using put-call parity model, prove that there is mispricing and identify the security that is mispriced relative to the others.(3 marks)
(b)Outline the arbitrage strategy and show the arbitrage assuming you invested in one lot/contract.(2 marks)
Graph the overall position.
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