A European call option has a strike price of $20 and an expiration date in six...
- A European call option has a strike price of $20 and an expiration date in six months. The premium for the call option is $5. The current stock price is $25. The risk-free rate is 2% per annum with continuous compounding. What is the payoff to the portfolio, short selling the stock, lending $19.80 and buying a call option? (Hint: fill in the table below.)
|
Value of ST |
Payoff |
|
ST ≤ 20 |
|
|
ST > 20 |
How much do you pay for (or receive with) this portfolio at date 0? Is there an arbitrage opportunity?
If there is an arbitrage opportunity, then answer the following:
What is the minimum profit, expressed as a present value? Will investors trade to exploit the opportunity? If they will trade to exploit the opportunity, explain why security prices change and describe how security prices change
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A European call option has a strike price of $20 and an
expiration date in six...
A European call option on a non-dividend payment stock with a strike price of$18 and an...
A European call option on a non-dividend payment stock with a strike price of$18 and an expiration date in one year costs $3. The stock price is $20 and the risk free rate is 10% per annum. Can you design an arbitrage scheme to exploit this situation?
Problem 12. A European call and put option on a stock both have a strike price...
Problem 12. A European call and put option on a stock both have a strike price of $30 and an expiration date in three months. The price of the call is $3, and the price of the put is $2.25. The risk free interest rate is 10% per annum, the current stock price is $31. Indentify the arbitrage opportunity open to a trader.
2. The market price of a 100-share European call option contract is $560. The expiration date...
2. The market price of a 100-share European call option contract is $560. The expiration date of the call option is one year from today. On that date, the price of the underlying stock will be either $50 or $32. The two states are equally likely to occur. Currently, the stock sells for $40; its strike price is $41, Suppose you are able to borrow money at 10 percent per annum. Is there an arbitrage chance? How can you make...
2. The market price of a 100-share European call option contract is $560. The expiration date...
2. The market price of a 100-share European call option contract is $560. The expiration date of the call option is one year from today. On that date, the price of the underlying stock will be either $50 or $32. The two states are equally likely to occur. Currently, the stock sells for $40; its strike price is $41, Suppose you are able to borrow money at 10 percent per annum. Is there an arbitrage chance? How can you make...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with strike 100 and expiration 30 costs 11. Both options have the same stock as their underlying security. What is the price of the security whose payoff structure is 7S (30) 630, if S(30) 100, S(30)-30, if 90 S(30) S 100,...
A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock...
A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock price is$64, the strike price is S60. The risk-free interest rate is 12% per annum for all maturities. what opportunities are there for an arbitrageur? (2 points) 1. a. What should be the minimum price of the call option? Does an arbitrage opportunity exist? b. How would you form an arbitrage? What is the arbitrage profit at Time 0? Complete the following table. c....
Consider a three-year European call option with the strike price of $150. The underlying stock will...
Consider a three-year European call option with the strike price of $150. The underlying stock will pay $10-dividend two years later from now. The current stock price is $170. The risk-free rate is 3% per annum. Find the range of the call prices that do not allow any arbitrage.
g) European call with a strike price of $40 costs $7. European put with the same...
g) European call with a strike price of $40 costs $7. European put with the same strike price and expiration date costs $6. Assume that you buy two calls and one put (strap strategy). Sketch the graph and write down functions of payoff and profit h) Consider a stock with a price of $50 and there is European put option on that stock with the strike of $55 and premium of $4. Assume that you buy 1/3 of a stock...
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a strike price of $45 and an expiration date in six months. Both sell for $2. The risk-free interest rate is 5% p.a. The current stock price is $43. There is no dividend expected for the next six months. a) If the stock price in three months is $48, which option is in the money and which one is out of the money? b) As an arbitrageur, can...
3. A 6-month European put option with a strike price of $20 sells for $1.44. The...
3. A 6-month European put option with a strike price of $20 sells for $1.44. The stock is priced at $17.50 and the risk-free rate is 10% per annum. (a) (5 points) What are the upper and lower bounds for this option? (b) (10 points) Is there an arbitrage opportunity in part (a)? If so, conduct an arbitrage with 100 shares of stock (clearly illustrate the steps of an arbitrage). What is the arbitrage profit?
A European call option on a non-dividend payment stock with a strike price of$18 and an expiration date in one year costs $3. The stock price is $20 and the risk free rate is 10% per annum. Can you design an arbitrage scheme to exploit this situation?
Problem 12. A European call and put option on a stock both have a strike price of $30 and an expiration date in three months. The price of the call is $3, and the price of the put is $2.25. The risk free interest rate is 10% per annum, the current stock price is $31. Indentify the arbitrage opportunity open to a trader.
2. The market price of a 100-share European call option contract is $560. The expiration date of the call option is one year from today. On that date, the price of the underlying stock will be either $50 or $32. The two states are equally likely to occur. Currently, the stock sells for $40; its strike price is $41, Suppose you are able to borrow money at 10 percent per annum. Is there an arbitrage chance? How can you make...
2. The market price of a 100-share European call option contract is $560. The expiration date of the call option is one year from today. On that date, the price of the underlying stock will be either $50 or $32. The two states are equally likely to occur. Currently, the stock sells for $40; its strike price is $41, Suppose you are able to borrow money at 10 percent per annum. Is there an arbitrage chance? How can you make...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with strike 100 and expiration 30 costs 11. Both options have the same stock as their underlying security. What is the price of the security whose payoff structure is 7S (30) 630, if S(30) 100, S(30)-30, if 90 S(30) S 100,...
A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock price is$64, the strike price is S60. The risk-free interest rate is 12% per annum for all maturities. what opportunities are there for an arbitrageur? (2 points) 1. a. What should be the minimum price of the call option? Does an arbitrage opportunity exist? b. How would you form an arbitrage? What is the arbitrage profit at Time 0? Complete the following table. c....
g) European call with a strike price of $40 costs $7. European put with the same strike price and expiration date costs $6. Assume that you buy two calls and one put (strap strategy). Sketch the graph and write down functions of payoff and profit h) Consider a stock with a price of $50 and there is European put option on that stock with the strike of $55 and premium of $4. Assume that you buy 1/3 of a stock...
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