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11. Suppose that we have the following 4 European call and put options with the same maturity T in the financial market: Strike Call Put 100 45 36 110 40 42 Suppose that the continuous compounding interest rate r = 0.05 in the market and the maturity time T 1. Suppose that the initial wealth is 0. Can you choose a portfolio using some of the options from the table and the Bank account to find an Arbitrage profit? If yes, be specific of your arbitrage portfolio. If no, prove your argument.

11. Suppose that we have the following 4 European call and put options with the same maturity T in the financial market: Strike Call Put 100 45 36 110 40 42 Suppose that the continuous compounding interest rate r = 0.05 in the market and the maturity time T 1. Suppose that the initial wealth is 0. Can you choose a portfolio using some of the options from the table and the Bank account to find an Arbitrage profit? If yes, be specific of your arbitrage portfolio. If no, prove your argument.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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11. Suppose that we have the following 4 European call and put options with the same maturity T in the financial market: Strike Call Put 100 45 36 110 40 42 Suppose that the continuous compounding interest rate r = 0.05 in the market and the maturity time T 1. Suppose that the initial wealth is 0. Can you choose a portfolio using some of the options from the table and the Bank account to find an Arbitrage profit? If yes, be specific of your arbitrage portfolio. If no, prove your argument.
Transcribed Image Text:11. Suppose that we have the following 4 European call and put options with the same maturity T in the financial market: Strike Call Put 100 45 36 110 40 42 Suppose that the continuous compounding interest rate r = 0.05 in the market and the maturity time T 1. Suppose that the initial wealth is 0. Can you choose a portfolio using some of the options from the table and the Bank account to find an Arbitrage profit? If yes, be specific of your arbitrage portfolio. If no, prove your argument.
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