I wrote a little page which checks Boundary Conditions of Stock Options. For example, put-call parity is S-c+p-X*exp(-rT), where S is the stock price, c and p are call and put option values, X is a strike price, r is risk free rate, T is time to maturity. Obviously, time to maturity should be the same for both options. You can consult Hull's "Options, Futures and Other derivatives" book for a list of boundary conditions, it's in chapter 8 of 5th edition.
So, if you enter your options prices on my page, it will check if any boundary conditions are violated. In that case there's arbitrage opportunity present.
Tuesday, February 13, 2007
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