Suppose you have the following information concerning a particular options. Stock price, S = RM 21 Exercise price, K = RM 20 Interest rate, r = 0.08 Maturity, T = 180 days = 0.5 Standard deviation, � = 0.5 The Call option value is 3.7739. and put option value is 1.8101 Suppose a European put options has a price higher than that dictated by the putcall parity. a. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless. Note: Use the call and put options prices above) b. Name the options/stock strategy used to proof the put-call parity. c. What would be the extent of your profit in (a) depend on?
Suppose you have the following information concerning a particular options. Stock price, S = RM 21 Exercise price, K = RM 20 Interest rate, r = 0.08 Maturity, T = 180 days = 0.5 Standard deviation, � = 0.5 The Call option value is 3.7739. and put option value is 1.8101 Suppose a European put options has a price higher than that dictated by the putcall parity. a. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless. Note: Use the call and put options prices above) b. Name the options/stock strategy used to proof the put-call parity. c. What would be the extent of your profit in (a) depend on?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter8: Financial Options And Applications In Corporate Finance
Section: Chapter Questions
Problem 5MC: In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1)...
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1. Suppose you have the following information concerning a particular options.
Stock price, S = RM 21
Exercise price, K = RM 20
Interest rate, r = 0.08
Maturity, T = 180 days = 0.5
Standard deviation, � = 0.5
The Call option value is 3.7739. and put option value is 1.8101
Suppose a European put options has a price higher than that dictated by the putcall parity.
a. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless. Note: Use the call and put options prices above)
b. Name the options/stock strategy used to proof the put-call parity.
c. What would be the extent of your profit in (a) depend on?
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