Question: Assuming you can long/short the futures index, the risk-free rate of 6% per year and 90-day maturity for the options, determine: (i) Using the put-call

Assuming you can long/short the futures index, the risk-free rate of 6% per year and 90-day maturity for the options, determine:
(i) Using the put-call parity, examine the nature of mispricing.
(ii) Outline the arbitrage strategy and determine the arbitrage profit if you transacted in one contract equivalent. [4 marks]
(iii) Graph your arbitrage strategy and the overall position.
(iv) Show that your arbitrage strategy is indeed riskless.

FBM KLCI = 1640 points
1650 OKLI call @ = 8 points
1650 OKLI put @ = 3 points

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Solution FBM KLCI Options Mispricing and Arbitrage Analysis i Nature of Mispricing Using putcall parity we can determine if the options are mispriced ... View full answer

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