Question
Given the following information concerning European options on a non-dividend paying stock: Call price $3.80 Put price $3.00 Strike price $30.00 Time to expiry 3
Given the following information concerning European options on a non-dividend paying stock:
| Call price | $3.80 |
| Put price | $3.00 |
| Strike price | $30.00 |
| Time to expiry | 3 months |
| Stock price | $30.90 |
| Risk free rate | 5% p.a. (continuously compounded) |
Show that put-call parity is violated. Use the table below to indicate the action that is required to earn an arbitrage profit. Based on one stock, calculate the arbitrage profit available.
| Action at t=0 | ||
|
| (Circle choice) | Cashflow |
| Call | buy / sell |
|
| Put | buy / sell |
|
| Stock | buy / sell |
|
| Cash | borrow / invest |
|
|
| ||
| Action at t=3 months | ||
| If Stock price < $30
|
| |
| If Stock price > $30
|
| |
| Arbitrage profit
|
| |
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Real Estate Investment Strategies Structures Decisions
Authors: David Hartzell, Andrew E. Baum
2nd Edition
1119526094, 978-1119526094
