Question: A stock that does not pay dividend is trading at $70. A European call optionwith strike price of $80 and maturing in one year is

A stock that does not pay dividend is trading at $70. A European call optionwith strike price of $80 and maturing in one year is trading at $15. An American call optionwith strike price of $80 and maturing in one year is trading at $20. You can borrow or lendmoney at any time at risk-free rate of 5% per annum with continuous compounding. Devisean arbitrage strategy.

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To devise an arbitrage strategy we need to find a way to make a riskless profit using the given prices of the stock and call options Heres one possibl... View full answer

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