Question
Currently, the spot price of a non-dividend-paying stock is $100 per share. The price of a 1-year European put option on this stock with a
Currently, the spot price of a non-dividend-paying stock is $100 per share. The price of a 1-year European put option on this stock with a strike price of $98 is $2. Suppose that the risk-free rate is always 1% per annum with continuous compounding.
(a) What is the price of a 1-year European call option on this stock with a strike price of $98?
(b) If the price of the call option in (a) is $6, what is the arbitrage opportunity? Provide your strategy in detail.
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Modern Financial Markets Prices, Yields, And Risk Analysis
Authors: Mark Griffiths, Drew Winters, David W Blackwell
1st Edition
0470000104, 9780470000106
