Exercise 1

Arbitrage:
Buy April Option Sell Feb. Option Net
Today -6 6.375 0.375

The strategy: If the February option is exercised, exercise the April

option to cover; the future cash flow will thus at worst be zero. The
initial cash flow, as shown above, will be positive.

The most likely explanation for the newspaper quotes is that the
prices quoted are not from simultaneous trades. In order for a
true arbitrage to be occur, it must be possible to simultaneously
trade in both options at once.

Page 1
 Exercise 1 中文

套利:
购买4月期权 出售2月份期权 净值
今天 -6 6.375 0.375

策略: 如果二月份期权执行， 通过执行四月份期权

来弥补; 未来现金流最差为零.
初始现金流将会是正的，正如上面显示的那样.

对于报纸报价最合理的解释为
报价与交易不是同时进行的.
为了使套利真实发生, 期权之间必须能够立刻交易。

Page 2
S 60
X 45
Call price 2

Arbitrage: Buy the option, exercise immediately

Cost -2
Exercise profit 15 #VALUE!
Total 13 #VALUE!

Minimum option price (following Proposition 1):

Interest rate 10%
Minimum call price 19.091 #VALUE!
S 60
X 45
看涨期权价格 2

套利:购买期权立即执行

成本 -2
执行利润 15 #VALUE!
总计 13 #VALUE!

最小期权价格(根据定理 1):
利率 10%
最小看涨期权价格 19.091 #VALUE!
S 80
X 80
Interest rate 8%
T 1
Dividend at t=0.5 3

Minimum option price (following Proposition 7):

Minimum call price 3.039
3.268
ollowing Proposition 7):
#VALUE!
#VALUE!
S 80
X 80
利率 8%
T 1
t=0.5时的股利 3

最低期权就价格(根据定理 7):
最低看涨期权价格 3.039
3.268
#VALUE!
#VALUE!
 Exercise 4

Put X=50 P=6

Call X=60 P=10

4.a.
1 put bought and 1 call bought Summary of strategies

ST Call Put Profit ST 1 Put 2 Puts 3 Puts

40 -10 4 -6 All 3 strategies--note common crossing point 40 -6 -2 2
42 -10 2 -8 42 -8 -6 -4
20
44 -10 0 -10 44 -10 -10 -10
46 -10 -2 -12 10 46 -12 -14 -16
48 -10 -4 -14 0 1 Put 48 -14 -18 -22

Profit
50 -10 -6 -16 -10 40 50 60 70 80 90 100 2 Puts 50 -16 -22 -28
52 -10 -6 -16 -20 3 Puts 52 -16 -22 -28
54 -10 -6 -16 -30 54 -16 -22 -28
56 -10 -6 -16 -40 56 -16 -22 -28
58 -10 -6 -16 58 -16 -22 -28
ST
60 -10 -6 -16 60 -16 -22 -28
62 -8 -6 -14 62 -14 -20 -26
64 -6 -6 -12 64 -12 -18 -24
66 -4 -6 -10 1 put + 1 call bought 66 -10 -16 -22
68 -2 -6 -8 68 -8 -14 -20
70 0 -6 -6 15 70 -6 -12 -18
72 2 -6 -4 72 -4 -10 -16
10
74 4 -6 -2 1 call bought 74 -2 -8 -14
76 6 -6 0 5 76 0 -6 -12
1 put bought
78 8 -6 2 0
78 2 -4 -10
Profit

80 10 -6 4 40 45 50 55 60 65 70 75 80 80 4 -2 -8
82 12 -6 6 -5 82 6 0 -6
84 14 -6 8 -10 84 8 2 -4
86 16 -6 10 86 10 4 -2
-15 1 put bought+1 call bought
88 18 -6 12 88 12 6 0
90 20 -6 14 -20 90 14 8 2
Stock price at time T, ST

4.b.
2 puts bought and 1 call bought

ST Call Put Profit

40 -10 8 -2
42 -10 4 -6
44 -10 0 -10
46 -10 -4 -14 2 Puts bought + 1 Call bought
48 -10 -8 -18
50 -10 -12 -22
15
52 -10 -12 -22
10
54 -10 -12 -22
5 2 puts bought 1 call bought
56 -10 -12 -22 2
58 -10 -12 -22 0 2 put bought
Profit

60 -10 -12 -22 -5 40 45 50 55 60 65 70 75 80

62 -8 -12 -20 -10

64 -6 -12 -18 -15
66 -4 -12 -16 1 call bought +2 put bought
-20
68 -2 -12 -14
-25
70 0 -12 -12
Stock price at time T, ST
72 2 -12 -10
74 4 -12 -8
76 6 -12 -6
78 8 -12 -4
80 10 -12 -2
82 12 -12 0
84 14 -12 2
86 16 -12 4
88 18 -12 6
90 20 -12 8

4.c.
3 puts bought and 1 call bought

ST Call Put Profit

40 -10 12 2
42 -10 6 -4
44 -10 0 -10
46 -10 -6 -16
48 -10 -12 -22
50 -10 -18 -28 Profit for 3 Puts + 1 Call
52 -10 -18 -28
54 -10 -18 -28
15
56 -10 -18 -28
58 -10 -18 -28 10
60 -10 -18 -28 5 1 call bought
62 -8 -18 -26 3 puts bought
0
64 -6 -18 -24 30 35 40 45 50 55 60 65 70 75 80
-5
Profit

66 -4 -18 -22
68 -2 -18 -20 -10
70 0 -18 -18 -15
72 2 -18 -16 -20
74 4 -18 -14
-25 3 puts bought + 1 call bought
76 6 -18 -12
78 8 -18 -10 -30
80 10 -18 -8
82 12 -18 -6
84 14 -18 -4
86 16 -18 -2
88 18 -18 0
90 20 -18 2
92 22 -18 4
94 24 -18 6

4.d.
We get the value by solving:

Max(0,ST - 60)) -10+Max(0, 50-ST)-6 = Max(0,ST-60))-10+2(Max(0,50-ST)-6))

=> ST = 44

Page 9
 Exercise 4 中文

看跌期权 X=50 P=6

看涨期权 X=60 P=10

4.a.
购买1个看跌期权和1个看涨期权 策略总结

ST 看涨期权 看跌期权 利润 ST 1个看跌期权 2个看跌期权 3个看跌期权

40 -10 4 -6 所有 3 个策略 - - 注意共同交点 40 -6 -2 2
42 -10 2 -8 42 -8 -6 -4
20
44 -10 0 -10 44 -10 -10 -10
10
46 -10 -2 -12 46 -12 -14 -16
48 -10 -4 -14 0 1 个看跌期权 48 -14 -18 -22

利润
50 -10 -6 -16 -10 40 50 60 70 80 90 100
2 个看跌期权 50 -16 -22 -28
52 -10 -6 -16 -20 3 个看跌期权 52 -16 -22 -28
54 -10 -6 -16 -30 54 -16 -22 -28
56 -10 -6 -16 -40 56 -16 -22 -28
58 -10 -6 -16 58 -16 -22 -28
ST
60 -10 -6 -16 60 -16 -22 -28
62 -8 -6 -14 62 -14 -20 -26
64 -6 -6 -12 64 -12 -18 -24
66 -4 -6 -10 购买 1 个看跌期权 +1 个看涨期权 66 -10 -16 -22
68 -2 -6 -8 68 -8 -14 -20
70 0 -6 -6 15 70 -6 -12 -18
72 2 -6 -4 72 -4 -10 -16
10
74 4 -6 -2 1 个看涨期权 74 -2 -8 -14
76 6 -6 0 5 76 0 -6 -12
1 个看跌期权
78 8 -6 2 0
78 2 -4 -10
利润

80 10 -6 4 40 45 50 55 60 65 70 75 80 80 4 -2 -8
82 12 -6 6 -5 82 6 0 -6
84 14 -6 8 -10 84 8 2 -4
86 16 -6 10 86 10 4 -2
-15 购买 1 个看涨该期权 +1 个看跌期权
88 18 -6 12 88 12 6 0
90 20 -6 14 -20 90 14 8 2
时间 T 股票价格 , ST

4.b.
购买2个看跌期权和1个看涨期权

ST 看涨期权 看跌期权 利润
40 -10 8 -2
42 -10 4 -6
44 -10 0 -10
46 -10 -4 -14 购买 2 个看跌期权 +1 个看涨期权
48 -10 -8 -18
50 -10 -12 -22
15
52 -10 -12 -22
10
54 -10 -12 -22
5 购买 1 个看涨期权
56 -10 -12 -22 购买两个看跌期权
58 -10 -12 -22 0
利润

60 -10 -12 -22 -5 40 45 50 55 60 65 70 75 80

62 -8 -12 -20 -10

64 -6 -12 -18 -15
66 -4 -12 -16 购买 2 个看跌期权 +1 个看涨期权
-20
68 -2 -12 -14
-25
70 0 -12 -12
时间 T 股票价格 , ST
72 2 -12 -10
74 4 -12 -8
76 6 -12 -6
78 8 -12 -4
80 10 -12 -2
82 12 -12 0
84 14 -12 2
86 16 -12 4
88 18 -12 6
90 20 -12 8

4.c.
购买3个看跌期权和1个看涨期权

ST 看涨期权 看跌期权 利润
40 -10 12 2
42 -10 6 -4
44 -10 0 -10
46 -10 -6 -16
48 -10 -12 -22
50 -10 -18 -28
3 个看跌期权 +1 个看涨期权的利润
52 -10 -18 -28
54 -10 -18 -28
15
56 -10 -18 -28
58 -10 -18 -28 10
60 -10 -18 -28 5 购买 1 个看涨期权
62 -8 -18 -26 购买 3 个看跌期权
0
64 -6 -18 -24 30 35 40 45 50 55 60 65 70 75 80
-5
66 -4 -18 -22
利润

68 -2 -18 -20 -10

70 0 -18 -18 -15
72 2 -18 -16 -20
74 4 -18 -14
-25 3 个看跌期权 +1 个看涨期权
76 6 -18 -12
78 8 -18 -10 -30
80 10 -18 -8
82 12 -18 -6
84 14 -18 -4
86 16 -18 -2
88 18 -18 0
90 20 -18 2
92 22 -18 4
94 24 -18 6

4.d.
通过解方程我们得到:

Max(0,ST - 60)) -10+Max(0, 50-ST)-6 = Max(0,ST-60))-10+2(Max(0,50-ST)-6))

=> ST = 44

Page 10
 Exercise 5

Write Call with X=90

Buy Call with X=100

Today Time = T
ST <90 90<ST<100 100<ST
Buy -20 0 0 ST -100
Write +30 0 -(ST-90) -(ST-90)
TOTAL +10 0 (-ST-90) > -10 -10

The PV of 10 at time T = 10e-rT = 9.048374

Since the spread today is 10, the maximum present value of the future
is 9.048374. Therefore, the difference between the two call prices
is too large and a riskless arbitrage exists.

Another way to do this is to invest the proceeds in a riskless security:

Today Time = T
ST <90 90<ST<100 100<ST
Buy -20 0 0 ST -100
Write 30 0 -(ST-90) -(ST-90)
Buy bond -10 11.0517091808 11.0517091808 11.0517091808
TOTAL 0 11.0517091808 (-S T
-90) >- 10+11.05 >0 -10+11.05>0

Page 11
 Exercise 5 中文

出售看涨期权X=90
购买看涨期权X=100

今天 时间 = T 时间=T
ST <90 90<ST<100 100<ST
购买 -20 0 0 ST -100
出售 +30 0 -(ST-90) -(ST-90)
总计 +10 0 (-ST-90) > -10 -10

10在时间按T = 10e-rT时的现值 = 9.048374

由于今天的差价为10,未来的最大现值
是9.048374.因此, 两个看涨期权价格的差值
太大,存在无风险套利

还有一种办法是将收益投资到无风险证券

今天 时间 = T
ST <90 90<ST<100 100<ST
购买 -20 0 0 ST -100
出售 30 0 -(ST-90) -(ST-90)
购买债券 -10 11.0517091808 11.0517091808 11.0517091808
总计 0 11.0517091808 (-S T
-90) >- 10+11.05 >0 -10+11.05>0

Page 12
 Exercise 6

6a
buy 1 share ST
buy 1 call Max(0,ST-90)-8

ST Profit Profit for 1 Share + 1 Call

80 -23
82 -21
10
84 -19
86 -17 5

88 -15 0
90 -13 -5 80 85 90 95 100 105

Profit
92 -9 ST
-10
94 -5 -15
96 -1
-20
98 3
100 7 -25

6b
buy 1 share ST
buy 2 call 2*(Max(0,ST-90)-8)

ST Profit Profit for 1 Share + 2 Calls

80 -31
82 -29
15
84 -27 10
86 -25 5
88 -23 0
-5 80 85 90 95 100 105
Profit

90 -21 -10
92 -15 -15
94 -9 -20
-25
96 -3
-30
98 3 -35
100 9 Stock price at time T, ST

6c

For 1 share + 1 Call

ST Profit
80 -23
82 -21
84 -19
86 -17
88 -15
90 -13
92 -9
94 -5
96 -1
98 3
100 7

For 1 share + 2 Calls

ST Profit
80 -31
82 -29
84 -27
86 -25
88 -23
90 -21
92 -15
94 -9
96 -3
98 3
100 9

For 1 share + 3 Calls

ST Profit
80 -39 -23 -31 Profit for 1 Share + N Calls
82 -37 -21 -29
84 -35 -19 -27 20
86 -33 -17 -25 10
88 -31 -15 -23
0
90 -29 -13 -21
80 85 90 95 100 105
92 -21 -9 -15 -10
Profit

94 -13 -5 -9
-20
96 -5 -1 -3
98 3 3 3 -30
100 11 7 9 -40

-50
Stock price at time T, ST

As shown on the graph, the profit lines cross at 98.

Page 13
 Exercise 6中文

6a
购买1股 ST
购买1个看涨期权 Max(0,ST-90)-8

ST 利润
1 股 +1 个看涨期权的利润
80 -23
82 -21
10
84 -19
86 -17 5

88 -15 0
90 -13 -5 80 85 90 95 100 105

利润
92 -9 ST
-10
94 -5 -15
96 -1
-20
98 3
100 7 -25

6b
购买1股 ST
购买2个看涨期权 2*(Max(0,ST-90)-8)

ST 利润 1 股 +2 个看涨期权利润
80 -31
82 -29
15
84 -27 10
86 -25 5
88 -23 0
-5 80 85 90 95 100 105
90 -21
利润

-10
92 -15 -15
94 -9 -20
-25
96 -3
-30
98 3 -35
100 9 时间 T 时股票价格 , ST

6c

对于1股+1个看涨期权
ST 利润
80 -23
82 -21
84 -19
86 -17
88 -15
90 -13
92 -9
94 -5
96 -1
98 3
100 7

对于1股+2个看涨期权
ST 利润
80 -31
82 -29
84 -27
86 -25
88 -23
90 -21
92 -15
94 -9
96 -3
98 3
100 9

对于1股+3个看涨期权
ST 利润
80 -39 -23 -31 1 股 +N 个看涨期权的利润
82 -37 -21 -29
84 -35 -19 -27 20
86 -33 -17 -25 10
88 -31 -15 -23
0
90 -29 -13 -21
80 85 90 95 100 105
92 -21 -9 -15 -10
利润

94 -13 -5 -9
-20
96 -5 -1 -3
98 3 3 3 -30
100 11 7 9 -40

-50
时间 T 时股票价格 , ST

正如图上所示, 利润线在98处相交.

Page 14
 Exercise 7

By Put-Call Parity
C+Xe-rT=P+S0

C 12
Bond 80 Xe-rT 76.09835
Put 5
S0 85
r 10%
T 0.5

C+Xe-r 88.09835
P+S0 90

Therefore, we write put, short stock, buy call and buy bond.

Arbitrage
At Time T
Today ST < S 0 ST > S 0
Write Put 5 -(80-ST) 0
Short Stock 85 -ST -ST
Buy Call -12 0 ST-80
Buy Bond -76.09835 80 80
1.901646 0 0

Page 15
 Exercise 7中文

由看跌-看涨期权平价定理
C+Xe-rT=P+S0

C 12
债券 80 Xe-rT 76.09835
看跌期权 5
S0 85
r 10%
T 0.5

C+Xe-r 88.09835
P+S0 90

因此，我们出售看跌期权，卖空股票，购买看涨期权和债券。

套利
在时间T
今天 ST < S 0 ST > S 0
出售看跌期权 5 -(80-ST) 0
卖空股票 85 -ST -ST
购买看涨期权 -12 0 ST-80
购买债券 -76.09835 80 80
1.901646 0 0

Page 16
 Exercise 8

The prices violate the convexity arbitrage proposition, which says that 2*P(50)<P(40)+P(60). Thus
an arbitrage strategy is to sell two of the 50 puts and to buy a 40 and a 60 put. This gives the
following profit diagram:

Profit Diagram for Strategy

ST Profit
12
30 1
32 1 10
34 1
8
36 1
Profit

38 1 6
40 1 4
42 3
44 5 2
46 7 0
48 9 30 35 40 45 50 55 60 65 70 75
50 11 Stock price at time T, ST
52 9
54 7 Note that the profit is positive, no matter what the stock price
56 5 at time T. This is an arbitrage--it cannot be in equilibrium.
58 3
60 1
62 1
64 1
66 1
68 1
70 1

Page 17
 Exercise 8 中文

该价格违背套利定理的凸性，就是说2*P(50)<P(40)+P(60).那么
一个套利策略师出售两个50的看跌期权，购买一个40的看跌期权和一个60的看跌期权.
利润图如下：

策略的利润图
ST 利润
12
30 1
32 1 10
34 1
8
36 1
38 1 6
利润

40 1 4
42 3
44 5 2
46 7 0
48 9 30 35 40 45 50 55 60 65 70 75
50 11 时间 T 时股票价格 , ST
52 9
54 7 注意利润始终是正的,不管在时间T时股票价格如何。
56 5 这就是套利--不可能平衡.
58 3
60 1
62 1
64 1
66 1
68 1
70 1

Page 18
 Exercise 9

Call Price
40 16.5
50 9.5
60 4.5
70 2

Current Stock Price 50

Strategy Profit
Buy 1 40 Call -6.5
Profit Diagram
Sell 2 50 Calls 19
Buy 1 60 Call -4.5
15
Sell 2 70 Calls 4
Total profit 12 10

5
Data table
0
ST
Profit
<-- header hidden
30 40 50 60 70 80 90
30 2 -5
32 2 -10
34 2
-15
36 2
38 2 -20
40 2 Stock price at time T, ST
42 4
44 6
46 8
48 10
50 12
52 10
54 8
56 6
58 4
60 2
62 2
64 2
66 2
68 2
70 2
72 -2
74 -6
76 -10
78 -14
80 -18

Page 19
 Exercise 9 中文

看涨期权 价格
40 16.5
50 9.5
60 4.5
70 2

当前股票价格 50

策略 利润
购买1个40的看涨期权 -6.5
出售2个50的看涨期权 19 利润图
购买1个60的看涨期权 -4.5
15
出售2个70的看涨期权 4
总利润 12 10

5
模拟运算表
0
ST <-- 表头隐藏
利润 30 40 50 60 70 80 90
30 2 -5
32 2 -10
34 2
-15
36 2
38 2 -20
40 2 时间 T 时股票价格 , ST
42 4
44 6
46 8
48 10
50 12
52 10
54 8
56 6
58 4
60 2
62 2
64 2
66 2
68 2
70 2
72 -2
74 -6
76 -10
78 -14
80 -18

Page 20
ST 50
Price per
Exercise price Bought (+) or written (-) call option Profit at ST
20 -1 45 15
30 2 33 -26
40 -1 22 12
50 1 18 -18
60 -2 17 34
70 1 16 -16
Total 1
Total Profit Diag
Data table 15
ST Profit
1
10
20 1
25 -4
30 -9 5

Profit
35 -4
40 1
0
45 1
10 20 30 40 50
50 1
55 6 -5
60 11
65 6
70 1 -10
75 1 ST
80 1

Part b: From the graph we see that there is a violation of the convexity condition for X = 50, 60, 70 (note that the graph is com
above the x-axis for these three prices). According to Proposition 5, C 60 < (C50+C70)/2, but this is not true.
 Total Profit Diagram

30 40 50 60 70 80 90

ST

0 (note that the graph is completely

ST 50
每个看涨
执行价格 购买 (+)或出售 (-) 期权价格 ST时的利润
20 -1 45 15
30 2 33 -26
40 -1 22 12
50 1 18 -18
60 -2 17 34
70 1 16 -16
总计 1
模拟运算表 总利润表
ST 利润 15
1
20 1
10
25 -4
30 -9
35 -4 5

利润
40 1
45 1 0
50 1 10 20 30 40 50
55 6
-5
60 11
65 6
70 1 -10
75 1 ST
80 1

b部分：从图中我们看到对于X=50，60，70有对凸性条件的违背(注意在这三个价格是，图完全
在X轴上方)。 根据定理 5，C60 < (C50+C70)/2，但是不正确。
 总利润表

30 40 50 60 70 80 90

ST
Formila stock price 38.5
Option exercise price, X 40
Option exercise time, T 1 <-- years
Interest rate, r 4.50% <-- assumed to be continuously compounded

Call price 3.00

Put price by put-call parity 2.74 #VALUE!

Part b. If the price of a put is $2, then S + P < C + PV(X)

This means you should buy S+P and sell C+PV(X).
Here are the arbitrage cash flows:

Today Cash flow Time T, if ST < X Time T, if ST

Buy stock -38.50 Stock +ST Stock
Buy put -2.00 Put payoff X-ST Put payoff
Sell call 3.00 Call payoff 0 Call payoff
Borrow PV(X) 38.24 Pay back loan -X Pay back loan
Total cash flow 0.74 0

Thus this strategy produces positive cash flows today and guaranteed zero cash flows in the future: Arbitrage!

Part c. If the price of a put is $4, then S + P > C + PV(X)

This means you should sell S+P and buy C+PV(X).
We'll leave the details to you.
Time T, if ST > X
+ST
0
-(ST - X)
-X
0

ture: Arbitrage!
Formila股票价格 38.5
期权执行价格, X 40
期权执行时间, T 1 <-- 年
利率, r 4.50% <-- 假设为连续复利

看涨期权就爱个 3.00
看跌-看涨期权平价的看跌期权价格 2.74 #VALUE!

b部分. 如果看跌期价格为$2, 那么 S + P < C + PV(X)

这意味着你应当购买 S+P和出售 C+PV(X).
以下是套利的现金流量:

今天 现金流量 时间T, 如果ST < X 时间T, 如果S

购买股票 -38.50 股票 +ST 股票
购买看跌期权 -2.00 看跌期权结算 X-ST 看跌期权结算
出售看涨期权 3.00 看涨期权结算 0 看涨期权结算
借用现值(X) 38.24 偿还贷款 -X 偿还贷款
总的现金流量 0.74 0

该策略今天产生正的现金流量和保证未来的现金流量为零：套利!

c部分. 如果看跌期权价格为$4,那么S + P > C + PV(X)

着意味着你应当出售S+P 和购买 C+PV(X).
我们将把细节留给你.
时间T, 如果ST > X
+ST
0
-(ST - X)
-X
0