Question
Question 4 The FBM KLCI and index options possess the following values : FBM KLCI = 730 points 740 call = 7 points 740 put
Question 4
The FBM KLCI and index options possess the following values :
FBM KLCI = 730 points
740 call = 7 points
740 put = 2 points
The spot index can be traded. The risk-free rate is 5% per annum. The options expire in 60 days.
Required:
- Prove that there is mispricing. (2 marks)
b. Propose a suitable arbitrage strategy and calculate the arbitrage profit. (2 marks)
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Investment Analysis And Portfolio Management
Authors: Frank K. Reilly, Keith C. Brown
9th Edition
0324656122, 978-0324656121
