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A European call and European put option on a stock both cost $5 with a common strike price $30 and a common time to maturity
A European call and European put option on a stock both cost $5 with a common strike price $30 and a common time to maturity of one year. The current stock price is $30. The risk-free rate is 4% per annum (continuously compounded). What arbitrage opportunities does this create?
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Step: 1
To determine if there are any arbitrage opportunities we need to compare the cost of the options with their potential payoffs at expiration Lets analy...
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Derivative Pricing
Authors: Ambrose Lo
1st Edition
0367734214, 978-0367734213
