The four-month gold futures contract is currently trading at the price of $2005 per ounce. The price  of a 3-month European call with a $2000 strike price on this gold futures contract is selling for $20  per ounce. The risk-free interest rate is 1% (compounded continuously).

If the price of a European  put option on the same gold futures contract with identical strike price and maturity is selling for  $17 per ounce, are there any arbitrage opportunities? If there are, show how an arbitrager can take  advantage of the opportunities. If there aren't any? Explain why not.

Answer rating: 100% (QA)

To determine if there are any arbitrage opportunities we need to calculate the fair price of the ... View the full answer