Question

Suppose that to buy either a call or a put option you pay the quoted ask price, denoted Ca(K, T ) and Pa(K, T ), and to sell an option you receive the bid, Cb(K, T ) and Pb(K, T ). Similarly, the ask and bid prices for the stock are Sa and Sb. Finally, suppose you can borrow at the rate rH and lend at the rate rL. The stock pays no dividend. Find the bounds between which you cannot profitably perform a parity arbitrage.


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  • CreatedAugust 12, 2015
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