Question

The price of a non-dividend-paying stock is $100 and the continuously compounded risk-free rate is 5%. A 1-year European call option with a strike price of $100 × e0.05×1= $105.127 has a premium of $11.924. A 11 2 year European call option with a strike price of $100 × e0.05×1.5 = $107.788 has a premium of $11.50. Demonstrate an arbitrage.


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  • CreatedAugust 12, 2015
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