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The price of a call option with a strike of $100 is $10. The price of...

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Finance

The price of a call option with a strike of $100 is $10. Theprice of a put option with a strike of $100 is $5. Interest ratesare 0 and the current price of the underlying is $100. Can you makean arbitrage profit? If so how? Describe the trade and your payoffs in detail.

Part 2: The price of a call option with a strike of $100 is $10.The price of a put option with a strike of $100 is $15. Interestrates are 0 and the current price of the underlying is $105. Canyou make an arbitrage profit? If so how? Describe the trade andyour pay offs in detail.

Answer & Explanation Solved by verified expert
4.1 Ratings (686 Votes)
Put Call parity theorem shows the relationship between Callprice and Put price if strike price and maturity is same for bothoption If Put Call parity does not hold good then arbitrageopportunity exists in the marketwhereC Call priceX Strike Pricer interest rate risk freet    See Answer
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The price of a call option with a strike of $100 is $10. Theprice of a put option with a strike of $100 is $5. Interest ratesare 0 and the current price of the underlying is $100. Can you makean arbitrage profit? If so how? Describe the trade and your payoffs in detail.Part 2: The price of a call option with a strike of $100 is $10.The price of a put option with a strike of $100 is $15. Interestrates are 0 and the current price of the underlying is $105. Canyou make an arbitrage profit? If so how? Describe the trade andyour pay offs in detail.

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