Posted by **Anonymous** on Tuesday, October 16, 2012 at 4:15pm.

. You are given the following two sets of prices of European options as a function of the strike price, for a stock with S = 100. Assume that all options mature in 6 months,

and that the interest rate (continuously compounding, annualized) is 10%.

(1) p(90) = 4; p(100) = 9 1/8 ; p(110) = 16; p(120) = 25 3/4

(2) p(90) = 2 ¾ ; p(100) = 81/2 ; p(110) = 17; p(120) = 24

For each set of prices, please answer the following questions:

(a) Assume that the stock will not pay any dividend in the next 6 months. Do

these prices satisfy arbitrage restrictions on options values? If yes, prove it. If

not, construct an arbitrage portfolio to realize riskless pro_ts and show how that

portfolio performs whatever the underlying price does

## Answer this Question

## Related Questions

- Futures &Options - 1. You are given the following two sets of prices of European...
- Finance - 1. Determine the intrinsic values of the following call options when ...
- Finance - A trader buys a European call option and sells a European put option. ...
- Finance, Math - You take a short position in one European put option contract, ...
- Finance - Using Monte Carlo simulation, calculate the price of a 1-year European...
- Finance - Consider the following two, completely separate, economies. Te ...
- Coporate Finance - Exotic Cuisines Employee Stock Options As a new graduate, you...
- Piecewise Function - The following questions I dont understand, could you please...
- mathematicalmodel - You take a short position in one European put option ...
- algebra - the size and diameter of your pizza the two options for number of ...

More Related Questions