Suppose S = $98, K = $100, u = 1.08, d = 0.94 a one period put option with delta of -0.10000 should sell for $1.41 but it selling in the market for $1.47. this leads to an arbitrage opportunity that can be accomplished by selling 0.10000 units of stocks invested at $80.00 for one period at the rate of 1.04 and selling the put. Does this lead to arbitrage profits?
Suppose S = $98, K = $100, u = 1.08, d = 0.94 a one period put option with delta of -0.10000 should sell for $1.41 but it selling in the market for $1.47. this leads to an arbitrage opportunity that can be accomplished by selling 0.10000 units of stocks invested at $80.00 for one period at the rate of 1.04 and selling the put. Does this lead to arbitrage profits?
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
Problem 1PS
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Suppose S = $98, K = $100, u = 1.08, d = 0.94 a one period put option with delta of -0.10000 should sell for $1.41 but it selling in the market for $1.47. this leads to an arbitrage opportunity that can be accomplished by selling 0.10000 units of stocks invested at $80.00 for one period at the rate of 1.04 and selling the put. Does this lead to arbitrage profits?
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