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Today's price of Apple (AAPL) is $200 per share. AAPL does not pay dividends. One year from today, there are two possible states. In the
Today's price of Apple (AAPL) is $200 per share. AAPL does not pay dividends. One year from today, there are two possible states. In the u state, the economy is booming and the price of AAPL is $300. In the d state, the economy is suffering and the price of AAPL is $100. The c.c. risk-free interest rate is five percent. You are interested in a European call option on AAPL with a strike of $175 and a maturity of one year. The market price of the call option is $70. Is there an arbitrage? If so, what should you buy and what should you sell? False. Yes; sell the call and buy the replicating portfolio Yes, buy the call and sell the replicating portfolio Yes, sell the call and sell the replicating portfolio. Yes; buy the call and buy the replicating portfolio
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