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Consider the following situation: p= 1, S0 = 37, T = 0.5 year, r = 5%, K = 40, D = 0. a. Is there
Consider the following situation: p= 1, S0 = 37, T = 0.5 year, r = 5%, K = 40, D = 0. a. Is there an arbitrage opportunity, and if so, how would you take advantage of it? b. Imagine now the options are American. What risks does this create for your arbitrage? Is the arbitrage still available? Please make sure to provide a detailed explanation.
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