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
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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Transcribed Image Text: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
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