Establish a replicating portfolio for the option

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Question: An Arbitrage Opportunity. Based on your analysis, you have determined that a particular stock will either increase by 50% or decrease by 50% in one year, from its current price of $8. You have noted that the price of a European call option with strike $10 expiring in one year is $1.50. Establish a replicating portfolio for this option, and explain how to use it to extract arbitrage.

Reference no: EM131934011

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