For a nondividend-paying stock, you are given: (i) The current stock price is 40. (ii) At the end of one month the stock price will be either 42 or 38. Assume that the continuously compounded risk-free interest rate is 0.08. (a) Calculate the current price of a 1-month 39-strike European call. (b) Identify an arbitrage strategy if the market price of the option is $1.5.
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For a nondividend-paying stock, you are given: (i) The current stock price is 40. (ii) At the end of...
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