Problem 3 Bounds on Options Assume that the CCIR is 4 The spot price of the underlying assets for each option below is $15 A Put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $4 9 Is there a mispricing If so, specify how you would exploit it A Put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $0 Is there a mispricing If so, specify how you would exploit it A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $16 Is there a mispricing If so, specify how you would exploit it A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $0 Is there a mispricing If so, specify how you would exploit it A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $2 and a put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $4 Is there a mispricing If so, specify how you would exploit it

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 23, 2024

Problem 3: Bounds on Options.

Assume that the CCIR is 4%. The spot price of the underlying assets for each option below is $15.

A Put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $4.9. Is there a mispricing. If so, specify how you would exploit it.
A Put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $0. Is there a mispricing. If so, specify how you would exploit it.
A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $16. Is there a mispricing. If so, specify how you would exploit it.
A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $0. Is there a mispricing. If so, specify how you would exploit it.
A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $2 and a put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $4. Is there a mispricing? If so, specify how you would exploit it.