A stock is trading at S = $60. There are one-month American calls and puts on the stock with a strike of $60. The call costs $2.50 while the put costs $1.90. No dividends are expected on the stock during the options' lives. If the one-month rate of interest (annualized) is 3%, show that there is an arbitrage opportunity available and explain how to take advantage of it. 

Is there a manner to set-up a model to assess and identify arbitrage opportunities such as this one?

Answer rating: 100% (QA)

To assess and identify arbitrage opportunities like the one described you can set up a pricing model such as the BlackScholes model for options The Bl... View the full answer