Question
The futures price of gold is $1946.5. A put and a call on this gold futures contract, both struck at $1945 both sell for $10.
The futures price of gold is $1946.5. A put and a call on this gold futures contract, both struck at $1945 both sell for $10. The interest rate is 4 percent. The options both expire in 3 months, and both are European. Identify an arbitrage opportunity. Identify the trades to exploit this opportunity and the profit you will earn.
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To identify an arbitrage opportunity we need to determine if there is a way to make a riskless profit by exploiting price discrepancies in the options and the futures contract Lets analyze the given i...Get Instant Access to Expert-Tailored Solutions
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
15th edition
1337671002, 978-1337395250
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