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The fictional currency cubit has a negative interest rate and as a result a cubit - denominated risk - free unit discount bond maturing in
The fictional currency cubit has a negative interest rate and as a result a cubitdenominated riskfree unit discount bond maturing in one year is worth cubits today. On the other hand, the oneyear riskfree interest rate on a dollar is zero. The current spot price of one cubit is $ There is no forward or futures market in cubits, but you can trade oneyear European calls and puts on cubits with$ strike. If the put premium is $ what is the call premium? How would you create an arbitrage if you found the quoted call premium is $ higher than your theoretical answer? Create a arbitrage table with trade,time zero and time T Buy the call or sell the call etc.
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