Question
A European put option is traded at $4 with the underlying price at $95. Time to expiry is one month and the strike is $100.
A European put option is traded at $4 with the underlying price at $95. Time to expiry is one month and the strike is $100. The risk-free interest rate (continuously compounded) is 3% per annum. Suppose you are an arbitrageur, devise a trading strategy to explore arbitrage opportunities. What is the minimum profit of your arbitrage portfolio?
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Public Finance
Authors: Harvey S Rosen
6th Edition
0072374055, 978-0072374056
