Problem 3: We consider several call and put options on TWTR with expiration Dec. 16, 2016. The last price of the stock on Dec. 02, 2016, was So = 17.93, and we had the following last traded prices for the options: call strike put 1.21 17 0.26 0.95 17.5 0.45 0.64 18 0.68 0.45 18.5 1.00 We can neglect interest rates and note that TWTR does not pay dividends. (a) There are two arbitrage opportunities where you can make a gain of at least 0.05 (per share) with a suitable combination of positions. Describe the strategy and the gain in each case! (Opts) (b) One option seems clearly overpriced. Which one is it and what should be an upper bound for its price? (2pts) (C) Suppose TWTR paid a dividend of 0.10 per share before expiration of the options. Based on the same prices, how could you use the stock and the options with strike 17 for an arbitrage opportunity? With a suitable position, what would be your profit (per share)? (2pts) Problem 3: We consider several call and put options on TWTR with expiration Dec. 16, 2016. The last price of the stock on Dec. 02, 2016, was So = 17.93, and we had the following last traded prices for the options: call strike put 1.21 17 0.26 0.95 17.5 0.45 0.64 18 0.68 0.45 18.5 1.00 We can neglect interest rates and note that TWTR does not pay dividends. (a) There are two arbitrage opportunities where you can make a gain of at least 0.05 (per share) with a suitable combination of positions. Describe the strategy and the gain in each case! (Opts) (b) One option seems clearly overpriced. Which one is it and what should be an upper bound for its price? (2pts) (C) Suppose TWTR paid a dividend of 0.10 per share before expiration of the options. Based on the same prices, how could you use the stock and the options with strike 17 for an arbitrage opportunity? With a suitable position, what would be your profit (per share)? (2pts)