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Example: Call is overvalued, arbitrage portfolio = - long postion in stock + cost of borrowing + short call = -SNd1 + PV(K)Nd2 + c When constructing an arbitrage portfolio/tracking portfolio, how does the positions/portfolio change when we have a put option? How does it change if the call or put is undervalued?
Example:
Call is overvalued, arbitrage portfolio = - long postion in stock + cost of borrowing + short call = -SNd1 + PV(K)Nd2 + c
When constructing an arbitrage portfolio/tracking portfolio, how does the positions/portfolio change when we have a put option? How does it change if the call or put is undervalued?
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