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Suppose you observe the following option info and are told that is no arbitrage between Options 1 and 3: Suppose you also know that the
Suppose you observe the following option info and are told that is no arbitrage between Options 1 and 3:
Suppose you also know that the stock pays a semi-annual dividend of $0.8 per share and the last one was paid two months ago. The current stock price is $36 and its volatility is estimated to be 35%. Please determine whether there is any arbitrage between Options 2 and 4. If yes, please come up with a trading strategy and calculate the arbitrage profit. (Hint: you need to use Excel Solver for this question.)
Option 1 2 3 Type call call put put Option Exercise Price Price $4.6749 $35 $3.7550 $38 $4.4588 $35 $6.0515 $38 Time to Maturity 11 months 12 months 11 months 12 months 4 Option 1 2 3 Type call call put put Option Exercise Price Price $4.6749 $35 $3.7550 $38 $4.4588 $35 $6.0515 $38 Time to Maturity 11 months 12 months 11 months 12 months 4Step by Step Solution
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