Question
Problems 411 illustrate arbitrage. Problems 58 use putcall parity while 911 are based on Black-Scholes. Putcall parity in effect states that long positions in a
Problems 411 illustrate arbitrage. Problems 58 use putcall parity while 911 are based on Black-Scholes. Putcall parity in effect states that long positions in a call and a risk-free bond plus a short position in a put must be the same value as the underlying stock. If not, at least one market is in disequilibrium. The resulting arbitrage alters the securities prices until the value of the three securities equals the value of the stock. Currently, the price of a stock is $50, while the price of a call option at $50 is $3, the price of the put op- tion is $1.50, and the rate of interest is 10 percentso that the investor may purchase a $50 discounted note
This is from the book Investments_ An Introduction, 13th Edition
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