3. Consider a financial market with one risky asset S and two options written on this risky asset. Both options have the same maturing time one year later, and the same strike price E = 100, but one is a call option while the other is a put option. We write So, Co, Po as the underlying asset's price, call option's price and the put option's price at time zero, respectively. So 100,co = 10, Po = 5. We assume that the interest rate r = 2%. Construct an arbitrage strategy for an arbitrageur and explain how your strategy works clearly. Solution: This is again an application of the put-call parity. (You are given both options, aren't you?) By Po + So, (1 + r)