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Question 7. Box Spread
(9 marks)
Use the data on Suncor Inc. presented in Question 6 above to answer this question.
a.
Construct a box-spread using the March option contracts with exercise prices of 24
and 25.
(2.5 marks)
b.
Construct a profitable riskless arbitrage opportunity using this box-spread, with the
requirement of $0 investment today. Calculate the NPV of the riskless profit.
(6.5 marks)

Top Answer

The box spread , or long box , is a common arbitrage strategy that involves... View the full answer

Screenshot 2020-01-04 at 10.05.36 AM.png

End of March price
call 24
call 25
put 24
put 25
Total
18
0
O
-7
6
-1
19
0
O
-6
5
-1
20
0
-5
4
-1
21
-4
-1
22
3
N
-1
23
2
24
-1
0
1
25
-1
o
-1
26
-2
H
-1
27
-3
-1
28
IN
3
-1
29
-5
4
30
-6
OO
-1

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