Question
Khazanah Bhd shares are currently at RM15.00. 3-month call and put options with RM15.00 exercise price are being quoted at RM0.75 and RM0.19 respectively. The
Khazanah Bhd shares are currently at RM15.00. 3-month call and put options with RM15.00 exercise price are being quoted at RM0.75 and RM0.19 respectively. The Rf rate is 12% per annum.
(a)Using put-call parity model, prove that there is mispricing and identify the security that is mispriced relative to the others.(3 marks)
(b)Outline the arbitrage strategy and show the arbitrage assuming you invested in one lot/contract.(2 marks)
Graph the overall position.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a Using the putcall parity model we can determine if there is any mispricing in the given options Pu...
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Step: 2
Step: 3
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Market Practice In Financial Modelling
Authors: Tan Chia Chiang
1st Edition
9814366544, 978-9814366540
