identifed the significant misprice in Astrazeneca (significant in this case means beyond rounding errors and leading to a risk-free profit via arbitrage above 2).

The following financial data for FTSE-traded companies was available on 1 February 2021.All prices are given in GBX (pence). The option price listed is for European options thatcan be exercised exclusively on 1 July 2021 for the stated strike price. You may assume thatno dividend is payable between 1 February and 1 July 2021.

ShareValue Call option Put option. Strikeprice

AstraZeneca 5725 357.85 412.68 5800

Diageo. 3025 173.79 240.15 3100

Unilever. 4260 260.58 288.60 4300

explain a possible arbitrage strategy, including an estimation of the expected risk-free profit. describe the strategy that you can pursue to make a risk-free profit. You will have to explain why you have chosen a particular strategy, the asset(s) and derivative(s) to trade in, the investment that needs to be made at present time, and what will happen to the portfolios at the maturity date(final time).

The arbitrage strategy needs to be self-financed, meaning that the trader does not need to invest their own money or assets. The trader can self-finance their arbitrage strategy constructing a portfolio by making as many financial transactions they desire at initial time. The transactions can consist of borrowing, buying, selling, exchanging and returning all the following: money (including different currencies), stocks, futures, options, bonds, or any instrument you think is relevant. However each initial transaction should not exceed the value of10000 and only one transaction at most of each type can be made. For example, only10000 can be borrowed from a bank and only once ; or only stocks up to the value of10000 can be borrowed and they can be borrowed only once. Initial transactions can be assumed to be made instantaneously and without fees. With the constraints above, the significant misprice that you have identified in the second part should allow you to devise an arbitrage strategy to make a profit greater than 2.