Question

A 3-month European put option on a non-dividend-paying stock is currently selling for $3.50. The stock price is $47.0, the strike price is $51, and the risk-free interest rate is 6% per annum (continuous compounding). Analyze the situation to answer the following question:

If there is no arbitrage opportunity in above case, what range of put option price will trigger an arbitrage opportunity? If there is an arbitrage opportunity in the above case, please provide one possible trading strategy to take advantage of this opportunity and show your trading results.

Answer #1

A 3-month European
put option on a non-dividend-paying stock is currently selling for
$3.50. The stock price is $47.0, the strike price is $51, and the
risk-free interest rate is 6% per annum (continuous compounding).
Analyze the situation to answer the following question:
If there is no
arbitrage opportunity in above case, what range of put option price
will trigger an arbitrage opportunity? If there is an arbitrage
opportunity in the above case, please provide one possible trading
strategy to...

A 1-month European call option on a non-dividend-paying-stock is
currently
selling for $3.50. The stock price is $100, the strike price is
$95, and the risk-free interest
rate is 6% per annum with continuous compounding.
Is there any arbitrage opportunity? If "Yes", describe your
arbitrage strategy using a table of cash flows. If "No or
uncertain", motivate your answer.

A 1-month European put option on a non-dividend paying stock is
selling for P = $1: S0 = $45; K = $48: r = :06 annually. Assume
continuous discounting. Are there opportunities for arbitrage? If
so, explain in detail the arbitrage strategy that will be used.

The price of a non-dividend paying stock is $45 and the
price of a six-month European call option on the stock with a
strike price of $46 is $1. The risk-free interest rate is 6% per
annum. The price of a six-month European put option is $2. Both put
and call have the same strike price. Is there an arbitrage
opportunity? If yes, what are your actions now and in six months?
What is the net profit in six months?

A ten-month European put option on a dividend-paying stock is
currently selling for $4. The stock
price is $40, the strike price is $43, and the risk-free interest
rate is 6% per annum. The stock is expected
to pay a dividend of $2 two months later and another dividend of $2
eight months later. Explain the
arbitrage opportunities available to the arbitrageur by
demonstrating what would happen under
different scenarios.

What is the price of a European put option on a
non-dividend-paying stock when the stock price is $70, the strike
price is $75, the risk-free interest rate is 10% per annum, the
volatility is 25% per annum, and the time to maturity is six
months?

Consider a European call option and a European put option on a
non dividend-paying stock. The price of the stock is $100 and the
strike price of both the call and the put is $104, set to expire in
1 year. Given that the price of the European call option is $9.47
and the risk-free rate is 5%, what is the price of the European put
option via put-call parity?

the price of a non-dividend-paying stock is $19 and the price of
a 3-month European call option on the stock with a strike price of
$20 is $1, while the 3-month European put with a strike price of
$20 is sold for $3. the risk-free rate is 4% (compounded
quarterly). Describe the arbitrage strategy and calculate the
profit.
Kindly dont forget the second part of the question

What is the price of a European put option on a
non-dividend-paying stock when the stock price is $100, the strike
price is $100, the risk-free interest rate is 8% per annum, the
volatility is 25% per annum, and the time to maturity is 1 month?
(Use the Black-Scholes formula.)

A
one-month European call option on a non-dividend-paying stock is
currently selling for$2.50. The stock price is $47, the strike
price is $50, and the risk-free interest rate is 6% per annum. What
opportunities are there for an arbitrageur?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 18 minutes ago

asked 19 minutes ago

asked 19 minutes ago

asked 30 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago