You notice the following quotes for the FBM KLCI and the index options.) FBM KLCI = 1510 points 1500 call = 35 points 1500 put = 15 points At option maturity, two scenario is assumed 1. (FBM KLCI goes up to 1550 points) 2. (FBM KLCI goes down to 1450 points) (Assuming you can long/short the spot index, the risk-free rate of 2% per year and 90-day maturity for the options: ) (i)(Prove that there is mispricing by using Put-Call parity.) (ii)Outline the arbitrage strategy and show the arbitrage assuming you invested in one lot/contract. (iii) Explain the diagram of the overall position.)
You notice the following quotes for the FBM KLCI and the index options.) FBM KLCI = 1510 points 1500 call = 35 points 1500 put = 15 points At option maturity, two scenario is assumed 1. (FBM KLCI goes up to 1550 points) 2. (FBM KLCI goes down to 1450 points) (Assuming you can long/short the spot index, the risk-free rate of 2% per year and 90-day maturity for the options: ) (i)(Prove that there is mispricing by using Put-Call parity.) (ii)Outline the arbitrage strategy and show the arbitrage assuming you invested in one lot/contract. (iii) Explain the diagram of the overall position.)
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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You notice the following quotes for the FBM KLCI and the index options.)
FBM KLCI = 1510 points 1500 call = 35 points 1500 put = 15 points At option maturity, two scenario is assumed 1. (FBM KLCI goes up to 1550 points) 2. (FBM KLCI goes down to 1450 points) (Assuming you can long/short the spot index, the risk-free rate of 2% per year and 90-day maturity for the options: ) (i)(Prove that there is mispricing by using Put-Call parity.) (ii)Outline the arbitrage strategy and show the arbitrage assuming you invested in one lot/contract. (iii) Explain the diagram of the overall position.) (iv) Show that your arbitrage strategy is indeed riskless.)
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