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Suppose such an option is priced on the market at V = 2.0 (i.e., higher than the no-arbitrage price). Describe the details for a

 

Suppose such an option is priced on the market at V = 2.0 (i.e., higher than the no-arbitrage price). Describe the details for a strategy that will result in a guaranteed profit (in present value, i.e., at t = 0) and determine the value of that profit (per option), somewhat similar to what we did.

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Since the option is priced higher than its no arbitrage price V 20 an arbitrage opportunity exists Heres a strategy to exploit this and earn a guarant... blur-text-image

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