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(Solved by Expert Tutors) A European call option and put option on a stock both have a strike pric


months. Currently, the call price is $20 and the put price is $12. The riskfreerate is 5% per annum, the current stock price is $75 and a $2.00 dividend is expected in 3 months. Identify the arbitrage opportunity open to the trader. All the interest rates arecontinuous compounded.Q1: To do this, take the call option prices as given and invoke the appropriate put-call parity relation to find the arbitrage-free theoretical price of the put option. This may not bethe same as the market price given in the question.

 


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DATE ANSWERED

Apr 19, 2020

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