Question
The current level of a stock index is 450. The dividend yield on the index is 4% per year (in continuously compounded terms), and the
The current level of a stock index is 450. The dividend yield on the index is 4% per year(in continuously compounded terms), and the risk-free rate if interest is 8% for six-month investments. A six-month futures contract on the index is trading for 465. Identify the arbitrage opportunities in this setting, and explain how you would exploit them.
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The opportunity for arbitrage here is to buy the stock index at 450 and sell ...Get Instant Access to Expert-Tailored Solutions
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Fundamentals of Futures and Options Markets
Authors: John C. Hull
8th edition
978-1292155036, 1292155035, 132993341, 978-0132993340
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