Use put call parity relationship-arbitrage opportunities

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Reference no: EM131360796

Use put call parity relationship to find 2 arbitrage opportunities in the real world.

P+S = C +PV(X)

We learned in the class that when put call parity relationship is violated, an arbitrage opportunity will arise. You will use this case to illustrate if you can find an arbitrage opportunity in a real world. To test the model, you will make two trades using 2 different sets of data.

You may define the parameters of the put call parity or use the following assumption for the parameters:Interest rate is 5%Transaction costs for a stock trade (selling or buying) is $10 per order. Transaction costs for an options trade (selling or buying) is $25 per order. Transaction costs for a bond trade (selling or buying) is $25per order. Assume 365 days a year. Last trade price may be used for a stock, call, or put.

$20,000 per arbitrage so 10,000 per move.

Reference no: EM131360796

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