Consider a put option and a call option, which have the same underlying stock, strike price...
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Consider a put option and a call option, which have the same underlying stock, strike price and expiration date (6 months from now). The call option premium is $2, the current stock price is $10, the strike price is $10. The annualized risk-free rate is 2%. a) Find the put premium b) Suppose it involves a transaction cost $1.5 to short a share of the stock. Is there any arbitrage opportunity if the put premium is $3? If Yes, construct the arbitrage trading strategy; if No, argue why. Consider a put option and a call option, which have the same underlying stock, strike price and expiration date (6 months from now). The call option premium is $2, the current stock price is $10, the strike price is $10. The annualized risk-free rate is 2%. a) Find the put premium b) Suppose it involves a transaction cost $1.5 to short a share of the stock. Is there any arbitrage opportunity if the put premium is $3? If Yes, construct the arbitrage trading strategy; if No, argue why.
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a The putcall parity formula relates the price of a European call option C European put option P the ... View the full answer
Related Book For
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
Posted Date:
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