The risk-free rate is 3.8%. An asset currently sells for $82. A 5-month call option with an exercise price of $85 costs $10.80 and an identical put costs $12.79. Assuming that there are no transaction costs and using discrete-time math for any discounting that you do, how much of an arbitrage profit can you make from Put-Call-Futures Disparity?

Answer rating: 100% (QA)

Lets calculate the theoretical prices of the call and put options using the putcall parity relationship C P S X 1 rt Where C Call option price P Put option price S Current price of the underlying asse... View the full answer