Khazanah Bhd shares are currently at RM15.00. 3-month call and put options with RM15.00 exercise price are

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Khazanah Bhd shares are currently at RM15.00. 3-month call and put options with RM15.00 exercise price are being quoted at RM0.75 and RM0.19 respectively. The R_f rate is 12% per annum.

(a)Using put-call parity model, prove that there is mispricing and identify the security that is mispriced relative to the others.(3 marks)

(b)Outline the arbitrage strategy and show the arbitrage assuming you invested in one lot/contract.(2 marks)

Graph the overall position.

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Market Practice In Financial Modelling

ISBN: 9789814366540

1st Edition

Authors: Tan Chia Chiang

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Posted Date: Apr 04, 2024 07:34 AM

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Khazanah Bhd shares are currently at RM15.00. 3-month call and put options with RM15.00 exercise price are

Question:

Expert Answer:

a Using the putcall parity model we can determine if there is any mispricing in the given options Pu... View the full answer

Market Practice In Financial Modelling

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