Question

A European put option is currently worth $3 and has a strike price of $17. In four months, the put option will expire. The stock price is $19 and the continuously compounding annual risk-free rate of return is .09. What is a European call option with the same exercise price and expiry worth? Also, given that the price of the call option is $5, show how is there an opportunity for arbitrage.

Answer #1

1. A put option with an exercise price of $17 that expires in 4
months is currently worth (costs) $3. The stock price is currently
$19 and the risk free rate of return is 0.09.
a) What is a call option with the same exercise price and expiry
worth?
b) Draw the profit diagram (at expiry) for the
put option from part a.

The strike price for a European call and put option is $56 and
the expiration date for the call and the put is in 9 months. Assume
the call sells for $6, while the put sells for $7. The price of the
stock underlying the call and the put is $55 and the risk free rate
is 3% per annum based on continuous compounding. Identify any
arbitrage opportunity and explain what the trader should do to
capitalize on that opportunity....

A European call option and put option on a stock both have a
strike price of $25 and an expiration date in four months. Both
sell for $4. The risk-free interest rate is 6% per annum, the
current stock price is $23, and a $1 dividend is expected in one
month. Identify the arbitrage opportunity open to a trader.

1. A European call option and put option on a stock both have a
strike price of $20 and an expiration date in three months. Both
sell for $3. The risk-free interest rate is 10% per annum, the
current stock price is $19, and a $1 dividend is expected in one
month. Is there an arbitrage opportunity? If there is an arbitrage
opportunity, clearly state what condition must be satisfied to
eliminate the arbitrage opportunity. What is the strategy
followed...

TSLA stock price is currently at $800. The 6-month $1000-strike
European call option on TSLA has a delta of 0.46. N(d2) of the
option is 0.26. TSLA does not pay dividend. Continuously
compounding interest rate is 5%. Compute the Black-Merton-Scholes
value of the TSLA European put option at the same strike and
expiry.

TSLA stock price is currently at $800. The 6-month $1000-strike
European call option on TSLA has a delta of 0.46. N(d2) of the
option is 0.26. TSLA does not pay dividend. Continuously
compounding interest rate is 5%. Compute the Black-Merton-Scholes
value of the TSLA European put option at the same strike and
expiry.

TSLA stock price is currently at $800. The 6-month $1000-strike
European call option on TSLA has a delta of 0.46. N(d2) of the
option is 0.26. TSLA does not pay dividend. Continuously
compounding interest rate is 5%. Compute the Black-Merton-Scholes
value of the TSLA European put option at the same strike and
expiry.

A
European call option and put option on a stock both have a strike
price of $20 and an expiration date in three months. Both sell for
$2. The risk-free interest rate is 5% per annum, the current stock
price is $25, and a $1 dividend is expected in one month. Identify
the arbitrage opportunity open to a trader.

The price of a European put that expires in six months and has a
strike price of $100 is $3.59. The underlying stock price is $102,
and a dividend of $1.50 is expected in four months. The term
structure is flat, with all risk-free interest rates being 8%
(cont. comp.).
What is the price of a European call option on the same stock
that expires in six months and has a strike price of $100?
Explain in detail the arbitrage...

A
European call option and put option on a stock both have a strike
price of $20 and an expiration date in three months. Both sell for
$3. The risk-free interest rate is 10 % per aunum, the current
stock price is $19 , and a $1 dividend is expected in one month.
identify the arbitrage oppotunity to a trader.

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