Question

S0=60, r=8%, Sd=45, Su=70, K=40, Vu=30, Vd=5, use the risk-neutral pricing formula to determine if an arbitrage opportunity exists, if the option selling for $23.0779

V(0)=23.0779, so there is an arbitrage opportunity exists.

V(0)=15.0779, so there is an arbitrage opportunity exists.

V(0)=23.0779, so there is no an arbitrage opportunity exists.

V(0)=15.0779, so there is no an arbitrage opportunity exists.

Answer #1

The optional selling price V(0)=23.0779 ,so there is an arbitrage opportunity exists.

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