Question

Please provide a satisfactory analysis (around 300 words) of why the above exercises are not sufficient to make a sound investment decision. The discussion may refer to deficiencies in the models utilized, unrealistic assumptions, theoretical shortcomings, etc. The mark depends on the depth of your analysis and your ability to address new knowledge that was not covered in class.

Answer 1

The following points shall be kept in mind about the fact that we have to analyse the deficiencies in the models.

1. the realistic assumptions were in compliance with the prevailing market conditions or not.

2. There is a lot of difference between the theory and the practical so we need to identify the loopholes

For Ex. The arbitrage opportunity seems viable in the theory but practically there are various other sources guiding the price.

I hereby have provided the following points so that you can use for your reference and for any difficulty you can use the comment box.