Suppose Patrick is considering a European put option that expires in 3 months. It is currently...
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Suppose Patrick is considering a European put option that expires in 3 months. It is currently priced at $7.45. The option has a strike price of $200 and the current underlying share price is $189.25. If the risk-free rate is 5% and there are no dividends: (1) is there an arbitrage opportunity? (2) if so, why? (3) if so, what actions should be taken (i.e., trades)? (4) if the stock price at maturity turned out to be $215, what is the profit? (5) if the stock price at maturity turned out to be $198, what is the profit? Suppose Patrick is considering a European put option that expires in 3 months. It is currently priced at $7.45. The option has a strike price of $200 and the current underlying share price is $189.25. If the risk-free rate is 5% and there are no dividends: (1) is there an arbitrage opportunity? (2) if so, why? (3) if so, what actions should be taken (i.e., trades)? (4) if the stock price at maturity turned out to be $215, what is the profit? (5) if the stock price at maturity turned out to be $198, what is the profit?
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Analyzing Patricks Put Option 1 Arbitrage Opportunity Yes there might be an arbitrage opportunity based on PutCall Parity 2 Why We can use PutCall Par... View the full answer
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