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How will he exploit arbitrage opportunity

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Steven is looking for violation of put-call parity relationship. He finds Jiang, Inc. stock selling for $845, and 3-month rf = 1%.

Call option on Jiang (T = 3 months; X = $860) = $20

Put option on Jiang (T = 3 months; X = $860) = $15

(a) Is the parity relationship violated?

(b) If yes, how will he exploit arbitrage opportunity? (Show cash flows at time 0 and at maturity [time T] as shown in class).

Reference no: EM132354425

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