Use put call parity relationship to find an arbitrage opportunity.
P+S = C +PV(X)
We learned in the class that when put call parity relationship is violated, an arbitrage opportunity will arise. You will use this case to illustrate if you can find an arbitrage opportunity in a real world. To test the model, you will make 5 trades using 5 different sets of data.
You may define the parameters of the put call parity or use the following assumption for the parameters:
Interest rate is 5%
Transaction costs for a stock trade (selling or buying) is $10 per order
Transaction costs for an options trade (selling or buying) is $25 per order
Transaction costs for a bond trade (selling or buying) is $25 per order
365 days a year
Last trade price may be used for a stock, call, or put.
Your case report should include the following format
Introduction of the case study, explanation of any related theory, the data souces, analytical results, and conclusion. Give a detailed description of one of your trades. Assume you have $100,000 to conduct the arbitrage.
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