A European put option on the share with an exercise price of $20 is currently trading for $22.00. The call option has si
Posted: Fri Mar 04, 2022 9:34 am
A European put option on the share with an exercise price of $20
is currently trading for $22.00. The call option has six months
until expiry and the riskless interest rate (continuously
compounded) is 3% per annum. Show the exact strategy that you
willadopt to generate arbitrage profits, by creating a table such
as the one below, and explaining the outcomes. What happens to
force the put price back to its arbitrage-free value?
is currently trading for $22.00. The call option has six months
until expiry and the riskless interest rate (continuously
compounded) is 3% per annum. Show the exact strategy that you
willadopt to generate arbitrage profits, by creating a table such
as the one below, and explaining the outcomes. What happens to
force the put price back to its arbitrage-free value?