MATH 534 Final: MATH 537 UMass Amherst finalS13soln
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Instructions: show all your work for full credit, and box your answers when appropriate. Unless otherwise noted, the risk free rate is per annum with continuous compounding, stocks do not pay dividends, and there are no arbitrage opportunities: google (goog) is currently trading for . Goog european put with strike 585 is trading for more than the 6-month. Construct an arbitrage opportunity involving one of each of these options. Solution: compare the two sides of put-call parity: c + ke rt = c + 585e 0. 03 6/12 = c + 576. 29 p + s0 = c + 20 + 600 = c + 625. The put side is overpriced compared to the call side, so buy call, sell put, sell share. Pro t is 625 576. 29 = 43. 71: you have entered a bet where your payo is + if the price of microsoft (msft) increases today (say from when the market opens at 9am to when it closes at.
