Given the underlying stock price S = 20 today, its price has a 90% possibility to be S = 18 and a 10% possibility to be S = 22 in three month. Thus, based on the the non- arbitrage pricing principal, the fair price of a call option expiring in three month at strike price K = 21 is 0.633 with the annual risk free interest rate r = 12% (See details in the lecture notes). If the current market price of the call falls to 0.5, does there exist an arbitrage opportunity? If yes, construct a strategy to do the arbitrage and explain it. Given the underlying stock price S = 20 today, its price has a 90% possibility to be S = 18 and a 10% possibility to be S = 22 in three month. Thus, based on the the non- arbitrage pricing principal, the fair price of a call option expiring in three month at strike price K = 21 is 0.633 with the annual risk free interest rate r = 12% (See details in the lecture notes). If the current market price of the call falls to 0.5, does there exist an arbitrage opportunity? If yes, construct a strategy to do the arbitrage and explain it