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6 The quote of the EURO STOXX 50 is at 4,158.14. The respective nine-month futures contract quotes at 4,100 . The coco risk-free rate is
6 The quote of the EURO STOXX 50 is at 4,158.14. The respective nine-month futures contract quotes at 4,100 . The coco risk-free rate is 2%. The index contains a dividend yield. 6.1 Suppose you believe that the dividend yield will be 9%. Do you see an arbitrage opportunity? Explain. What would be the correct strategy to exploit this opportunity? 6.2 Suppose you believe that the dividend yield will be 2.5%. Apply the correct strategy to exploit the incorrectly implied dividend yield by providing a table showing the cash flows today and in the future together with the profit. Elaborate on what you do. 6.3 A market maker or arbitrageur must be able to offset the risk of a forward contract. How can you create a synthetic forward? How can you create a synthetic stock? Elaborate briefly on these two synthetics
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