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Suppose S=$96,K=$100,u=1.06, and d=0.94. A one period put option, with a delta of -0.8472 , should sell for $3.19, but it is selling in the
Suppose S=$96,K=$100,u=1.06, and d=0.94. A one period put option, with a delta of -0.8472 , should sell for $3.19, but it is selling in the market for $3.70. This leads to an arbitrage opportunity that can be accomplished by selling 0.8472 unit of the stock, investing $84.52 for one period at the rate of 1.02 , and selling the put. This leads to an arbitrage profit of: $1.75 $0.73 $0.51 $16.96
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