Question: Here are my answer, please help me check if I'm correct, thanks. 2. Arbitrage Using Call Suppose that the price of the call option in

Here are my answer, please help me check if I'm correct, thanks.

2. Arbitrage Using Call Suppose that the price of the call option in Question 1 is $6. Is there an arbitrage in the market? If so, find the arbitrage strategy and its resulting cash flows.

If no arbitrage exist, price of call option should be in between upper and lower bounds, since it is below the lower bound, an arbitrage opportunity exist, the arbitrage strategy should be:

action today	cash flow at 0	cash flow at year 3
		ST>=48	ST<=48
long call	-6	(ST-48)	0
buy a bond	-41.31398287	48	48
sell stock	50	-ST	-ST
Net	2.686017132	0	48-ST

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