Question: Problem 3: Bounds on Options. Assume that the CCIR is 4%. The spot price of the underlying assets for each option below is $15. A

Problem 3: Bounds on Options.

Assume that the CCIR is 4%. The spot price of the underlying assets for each option below is $15.

  1. A Put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $4.9. Is there a mispricing. If so, specify how you would exploit it.
  2. A Put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $0. Is there a mispricing. If so, specify how you would exploit it.
  3. A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $16. Is there a mispricing. If so, specify how you would exploit it.
  4. A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $0. Is there a mispricing. If so, specify how you would exploit it.
  5. A Call option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $2 and a put option with expiration in 12 months from now and strike price $5 (per share) is currently trading at $4. Is there a mispricing? If so, specify how you would exploit it.

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