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In early April 2022, Westpac is trading at $48.82. The $50 call option that expires in 254 days is trading at a premium of
In early April 2022, Westpac is trading at $48.82. The $50 call option that expires in 254 days is trading at a premium of $6.28 and the put option of the same series is trading at $6.34. These prices seem odd to you and you suspect that an arbitrage opportunity exists. You note the continuously compounded risk free rate is 3.2459%. What trade do you place and what is your expected profit from this trade?
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Step: 1
To determine if an arbitrage opportunity exists we can compare the cost of replicating the 50 call option using a combination of the stock and riskfre...
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Money Banking And The Financial System International Edition
Authors: R. Glenn Hubbard ,Anthony P Obrien
2nd Edition
129200018X, 978-1292000183
