Question
Let S 0 denote the spot price of a stock, which after one-time step T will be either S 0 u or S 0 d
Let S0 denote the spot price of a stock, which after one-time step T will be either S0u or S0d with u > d. Let r be the risk-free rate. Suppose d > erT.
(a) Construct an arbitrage opportunity involving one share of stock and some cash.
(b) What is the minimum guaranteed profit of this strategy?
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Sustainable Finance And Banking
Authors: Marcel Jeucken
1st Edition
1853837660, 978-1853837661
