A 1-month European put option on a non-dividend-paying stock is currently selling for $2.50. The stock price is $47, the strike price is $50, and the risk-free interest rate is 6% per annum. What opportunities are there for an arbitrageur?

11.16. The price of an American call on a non-dividend-paying stock is $4. The stock price is $31, the strike price is $30, and the expiration date is in 3 months. The risk-free interest rate is 8%. Derive upper and lower bounds for the price of an American put on the same stock with the same strike price and expiration date.

12.7. A call option with a strike price of $50 costs $2. A put option with a strike price of $45 costs $3. Explain how a strangle can be created from these two options. What is the pattern of profits from the strangle?

12.12. A call with a strike price of $60 costs $6. A put with the same strike price and expiration date costs $4. Construct a table that shows the profit from a straddle. For what range of stock prices would the straddle lead to a loss?

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Lets analyze each question separately 1 For the 1month European put option Stock price 47 Strike price 50 Option price 250 Riskfree interest rate 6 per annum To identify arbitrage opportunities we can ... View the full answer