2. Let S = $100,K = $95, r = 8%, T = 0.5, and = 0....
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2. Let S = $100,K = $95, r = 8%, T = 0.5, and δ = 0. Let u = 1.3, d = 0.8, and n = 1.
a. Verify that the price of a European call is $16.196.
b. Suppose you observe a call price of $17. What is the arbitrage?
c. Suppose you observe a call price of $15.50. What is the arbitrage?
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Related Book For
Derivatives Markets Pearson New International Edition
ISBN: 978-1292021256
3rd Edition
Authors: Robert L. Mcdonald
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