The stock price of Top Gloves Bhd today is RM3.00. The call option on this stock with a strike price of RM2.00 and a 60 days maturity has an option premium of RM1.50. The put option with a strike price of RM2.00 and 60 days expiry possess a premium of RM1.20. The risk-free rate per annum is 5%. Required: (a) Prove that there is mispricing. (b) Suggest a suitable arbitrage strategy for this mispricing.

The stock price of Top Gloves Bhd today is RM3.00. The call option on this stock with a strike price of RM2.00 and a 60 days maturity has an option premium of RM1.50. The put option with a strike price of RM2.00 and 60 days expiry possess a premium of RM1.20. The risk-free rate per annum is 5%. Required: (a) Prove that there is mispricing. (b) Suggest a suitable arbitrage strategy for this mispricing.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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