#34 Suppose the European call and put options with strike price

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Question

#34 Suppose the European call and put options with strike price $20 and maturity date in 1 month cost $2.0 and $1.0, respectively. The underlying stock price is $18 and the risk-free continuously compounded interest rate is 8%.

(a) Is there an arbitrage opportunity?

(b)If yes, how would you implement arbitrage opportunity?

Answer