Question
A European call with strike X and maturity T is trading at c. The underlying stock does not pay any dividend. The annual interest rate
A European call with strike X and maturity T is trading at c. The underlying stock does not pay any dividend. The annual interest rate is rf. Suppose c > S X/(1+rf)^T and one call is on one share for simplicity. Then you can_____ one call, ____one share of the stock and ____ X/(1+rf)^T to form an arbitrage portfolio.
| buy, sell, borrow | ||
| sell, buy, lend | ||
| sell, buy, borrow | ||
| buy, sell, lend |
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The Selected Works Of George J. Benston Banking And Financial Services Volume 1
Authors: James D. Rosenfeld
1st Edition
0195389018, 0199745471, 9780199745470
