Question
r = 8% (c.c.), T (option expiry) = 6 months. Assume we have the following table of option prices: Strike Put Call K 1 =
r = 8% (c.c.), T (option expiry) = 6 months. Assume we have the following table of option prices:
| Strike | Put | Call |
| K1 = 80 | 4.40 | 26.60 |
| K1 = 90 | 7.94 | 20.16 |
| K1 = 100 | 12.66 | 14.96 |
a) Use Put Call Parity to identify an arbitrage. Construct the arbitrage portfolio and compute your profit.
b) If the interest rate were 1% instead of 8%, would you still have an arbitrage? If so, what would your profit be?
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Emotions In Finance Booms Busts And Uncertainty
Authors: Jocelyn Pixley
2nd Edition
1107633370, 978-1107633377
