A European call option and a European put option on a stock both have the same strike price of $45 and expire in 6 months. Currently, the market call price is $10 and the put price is $6. The risk-free rate is 2% per annum, and the current stock price is $49. Identify the arbitrage opportunity open to the trader. All the interest rates are with continuous compounding. Hint: Arbitrage table from the class example.
A European call option and a European put option on a stock both have the same strike price of $45 and expire in 6 months. Currently, the market call price is $10 and the put price is $6. The risk-free rate is 2% per annum, and the current stock price is $49. Identify the arbitrage opportunity open to the trader. All the interest rates are with continuous compounding. Hint: Arbitrage table from the class example.
Related questions
9)
A European call option and a European put option on a stock both have a strike price of $45 and expire in 6 months. Currently, the call price is $10 and the put price is $5 in the market. The risk-free rate is 2% per annum, and the current stock price is $50. Identify the arbitrage opportunity open to the trader. All the interest rates are with continuous compounding.
| a) Buy call, sell put, sell stock | ||
| b) Buy call, sell put, buy stock | ||
| c) Sell call, buy put, buy stock | ||
| d) Sell call, buy put, sell stock |
