In the following set of Europe
In the following set of European option prices, assume 1‐month call and put price at strike 108 are correct. Prevailing short‐term interest rate is 2% per year. There are arbitrage opportunities in the rest of the strikes. Find all the available arbitrage opportunities.
Call Price .71 .29 .14
Strike 106.5 108 110
Put Price 0.23 1.70 4.39
As an independent trader without any affiliation with a big financial institution, which of the arbitrage
opportunities might be difficult for you to exploit?
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