You are given: (i) The following prices of 3-year European call options on the same stock: (ii)
Question:
You are given:
(i) The following prices of 3-year European call options on the same stock:
(ii) The continuously compounded risk-free interest rate is 2%.
To earn arbitrage profit, you buy two 100-strike call options, two 120-strike call options, sell some 110-strike call options, and invest the proceeds (or finance the cost) at the risk-free rate.
Calculate your maximum and minimum profit at the end of 3 years.
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Observe that 110 05100120 and that ...View the full answer
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