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A non-dividend- paying stock is currently priced at 101, the continuously compounded annual interest rate is 0.05. A forward delivering one share of the
A non-dividend- paying stock is currently priced at 101, the continuously compounded annual interest rate is 0.05. A forward delivering one share of the stock after 1 year has a strike 106. What arbitrage opportunity would you undertake? (Hint: if the forward is over-priced compared to its theoretical price, then take a short position on the forward. Otherwise, if the forward is under- priced, take a long position on the forward.)
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Management Science The Art Of Modeling With Spreadsheets
Authors: Stephen G. Powell, Kenneth R. Baker
4th Edition
978-1118517376, 9781118800348, 1118517377, 1118800346, 978-1118582695
