Suppose you saw that a call is $10, a put is $3, the stock is $70, and the bond's current price is $64. Note that the options are written with same K, same T, and same underlying stock. The face value of the bond is the strike of the option. The maturity of the bond is the expiration of the option. Is there an arbitrage? If so, how many trades and how many exchanges are involved?

Answer rating: 100% (QA)

To check for arbitrage opportunities lets use the principle of noarbitrage in the options and bond m... View the full answer