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A European call option matured in one month with strike price K = 12. Consider a one-period binomial model with initial stock price S0 =
A European call option matured in one month with strike price K = 12. Consider a one-period binomial model with initial stock price S0 = 10, u = 1.25 and d = 0.8 with interest rate r = 10% for one month. If the market value of the option is $0.2, does there exist an arbitrage opportunity? If yes, please describe the strategy.
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