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a Arbitrage is a key concept in financial mathematics. In this project, you are expected to consider some financial trading opportunities and identify, from the
a Arbitrage is a key concept in financial mathematics. In this project, you are expected to consider some financial trading opportunities and identify, from the given data set, a mispricing that can lead in turn to an arbitrage opportunity. Then you will have to report a corresponding arbitrage strategy for returning a risk-free profit and estimate the magnitude for the expected profit, both in written and in oral form. 3 Data A trader has access to the following four investment opportunities. One of them features a significant misprice that needs to be identified. Once identified, an arbitrage strategy can be devised to make a risk-free profit (see below for further guidance). The trader also has access to bonds at the UK market interest rate at 0.67%. Opportunity 4: Option portfolio trading The following financial data for FTSE-traded companies was available on 1 February 2021. All prices are given in GBX (pence). The option price listed is for European options that can be exercised exclusively on 1 July 2021 for the stated strike price. You may assume that no dividend is payable between 1 February and 1 July 2021. Share Value Call option Put option Strike price AstraZeneca 5725 303.33 362.16 5800 Diageo 3025 204.77 271.13 3100 Unilever 4260 275.77 303.79 4300
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