Question: Question 3: Implied Volatility and Put-Call Parity (3/10) . Suppose S = 100 and there are both a 9-month European call and a 9-month European

Question 3: Implied Volatility and Put-Call Parity (3/10) .

Suppose S = 100 and there are both a 9-month European call and a 9-month European

put with K = 100. The continuously compounded risk-free rate is 5%, and there are no

payouts.

(i) The call currently trades at a price of 14.087. What is the Black-Scholes implied

volatility?

(ii) The put trades at an implied volatility of 36.85%. Is there an arbitrage opportunity

here? If so, how would you take advantage of it and what are the cash

ows?

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