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There is a European and an American put on the same non-dividend paying stock today. Both put options have the same strike price of 5,000 and the same expiration date of October 28, 2021. The European put is currently trading at 100 and the American put at 80.
(a) Is there an arbitrage opportunity?
(b) If there is one, how would you take advantage of it?
(c) Explain your positions/transactions on all appropriate dates and compute your arbitrage profit. If there is no arbitrage opportunity, explain why. Note, do not forget the possibility of the American put being exercised early prior to expiration.
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