easy · Quantitative Finance
A European call and put on a non-dividend stock have the same strike K =100 and expiry T = 1. The risk-free rate is r = 5%. If the call trades at 12.00 and the put trades at7.50, and the spot price is $100, identify the arbitrage opportunity.
- The call is overpriced relative to the put; sell the call and buy the put.
- The put is overpriced relative to the call; sell the put and buy the call.
- The call is underpriced; buy the call and sell the stock.
- The options are correctly priced as the difference is within a typical bid-ask spread of $0.50.
Sign up free to see the explanation and track your rank →
More Quantitative Finance practice
- If the correlation between two assets is ρ = 0.6, what is the R^2 of a linear regression o
- For a standard Brownian motion W_t, what is the expected value of W_t^2?
- If the risk-neutral probability of an up move is p = 0.6, what is the expected stock price
- When calibrating a Heston stochastic volatility model, a pra… — Does this calibration sati
- Based on put-call parity, what is the arbitrage-free relationship?
- If the risk-neutral probability of an up move is p = 0.6 and the risk-free rate is zero, w
- Assuming 252 trading days in a year, what is the annualized historical volatility?
- Under Girsanov's Theorem, what does a change of probability measure primarily alter in a s