The spot price of corn is 301.40 cents per bushel. The three-month futures price on corn is 316.2 cents per bushel. The two-month call option on this corn futures with an exercise futures with an exercise price of 330 cents per bushel is priced at $12.70. The continuously compounded risk-free rate is 2.3%. 

Required:

Construct a risk-free arbitrage strategy with positive cash flow at time 0 and zero cash flow at the option expiration time T.

Answer rating: 100% (QA)

To construct a riskfree arbitrage strategy we need to identify opportunities where we can generate positive cash flow at time 0 initial investment and ... View the full answer