How you guys attack box spread?
Profit=X2 –X1 -(c1 –c2 +p2 –p1)
Porfit/ Investment(c1 –c2 +p2 –p1) = 1 + risk free rate
A box spread can be used to exploit an arbitrage opportunity, so the question may ask the arbitrage amount
Is that all we need to know?
You need to understand the strategy of box spread: - Long Call and Long Put X1, Short Call and Short Put X2 which is = bull spread + bear spread. You need to know when to use it: as you said to expolit arbitrage opportunity by earning risk-free rate plus extra return from mispricing.
Premiums= premium paid
Value at T= X2-X1
Profit= RFR
Max Profit= RFR
Max Loss= None, RFR is earned
Breakeven= None, RFR is earned
And you have to know the shape of the box spread… That’s all you need to know