Use put call parity relationship to find an arbitrage opportunity.
P+S = C +PV(X)
Or P+S = C +PV(X) +D
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 the real world. To test the model, you will use the real data from CBOE.com options quote page to analyze the arbitrage trading. Assume you have $1,000,000 trading capital to conduct the arbitrage.
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 calendar days a year and 252 business 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 sources (include a snapshot of the screen from CBOE or Yahoo finance), analytical results, and conclusion. Give a detailed description of one of your trades and the other four briefly.
Calculate the arbitrage profit based on the transaction of one options contract.
Finally, Include everything, such as Excel calculation, in a word document.
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