We observe the prices (at time t = 0) of the following European call/put options on the market. Suppose that the interest rate r = 0, and the initial price of the underlying stock is So= 100. Please construct a portfolio, using these options together with the cash (bank account), to find an arbitrage opportunity. Option Type Strike Put 90 Call 100 Put 110 Maturity Option Price at time t=0 2 6 1 11 2 14

We observe the prices (at time t = 0) of the following European call/put options on the market. Suppose that the interest rate r = 0, and the initial price of the underlying stock is So= 100. Please construct a portfolio, using these options together with the cash (bank account), to find an arbitrage opportunity. Option Type Strike Put 90 Call 100 Put 110 Maturity Option Price at time t=0 2 6 1 11 2 14

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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