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Problem 1. You are interested in purchasing equity index options. Your broker is providing you tables of quotes for call and put options on the
Problem 1. You are interested in purchasing equity index options. Your broker is providing you tables of quotes for call and put options on the same index with the same expiration date. The only difference across these options is the strike price. C(K) denotes the price of the call option on the equity index with strike K and P(K) denotes the price of the call option on the equity index with strike K. (a) If your broker presented you with the following table is there an arbitrage opportunity and if so what trade would you make to take advantage of it? (b) If your broker presented you with the following table is there an arbitrage opportunity and if so what trade would you make to take advantage of it? Problem 1. You are interested in purchasing equity index options. Your broker is providing you tables of quotes for call and put options on the same index with the same expiration date. The only difference across these options is the strike price. C(K) denotes the price of the call option on the equity index with strike K and P(K) denotes the price of the call option on the equity index with strike K. (a) If your broker presented you with the following table is there an arbitrage opportunity and if so what trade would you make to take advantage of it? (b) If your broker presented you with the following table is there an arbitrage opportunity and if so what trade would you make to take advantage of it
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