Identify any arbitrage opportunities

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Reference no: EM131997807

Suppose the call price is $14.20 and the put price is $9.30 for stock options where the exercise price is $100, the risk-free rate is 5% (continuously compounded), and the time to expiration is one year. Explain how you would create a synthetic stock position (i.e., a portfolio that behaves exactly like a stock but doesn't contain the stock), and identify the cost of the portfolio. Suppose you observe a $100 stock price, identify any arbitrage opportunities. Show the steps you would take to profit from such opportunities.

Reference no: EM131997807

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