Chapter 10

Task 

In this assignment, you will solve problems on No-arbitrage Restrictions, Early Exercise and Put-Call Parity.

Instructions 

1. Use your textbook to answer the following questions from Chapter 10:
   1. Exercise 21 and 22.
2. Please, upload xls, xlsx file.
3. Please, use the full computing power of Excel.

21.  stock is trading at S = 50. There are one-month European calls and puts on the stock

with a strike of 50. The call is trading at a price of CE = 3. Assume that the one-month

rate of interest (annualized) is 2% and that no dividends are expected on the stock over

the next month.

(a) What should be the arbitrage-free price of the put?

(b) Suppose the put is trading at a price of PE = 2.70. Are there any arbitrage opportunities?

22.   A stock is trading at S = 60. There are one-month American calls and puts on the

stock with a strike of 60. The call costs 2.50 while the put costs 1.90. No dividends

are expected on the stock during the options’ lives. If the one-month rate of interest

(annualized) is 3%, show that there is an arbitrage opportunity available and