Understanding basic options arbitrage in Hull

I’m reading Hull’s book, Options, Futures and Other Derivatives. In Chapter 11 he discusses put-call parity and the arbitrage opportunities that can result from its violation. I’m having a basic issue, which is it seems he is shorting stock without paying interest. Here’s a concrete example from his section 11.3 concerning a European call:

Suppose that $$S_0$$ = \$20, K = \$18, r = 10% per annum, and T = 1 year. In this case, $$S_0 - Ke^{-rT}= 20 - 18e^{-0.1}= 3.71$$ or \$3.71. Consider the situation where the European call price is \$3.00, which is less than the theoretical minimum of \$3.71. An arbitrageur can short the stock and buy the call to provide a cash inflow of \$20.00 - \$3.00 = \$17.00. If invested for 1 year at 10% per annum, the \$17.00 grows to $$17e^{0.1*1} = \\\18.79$$. At the end of the year, the option expires. If the stock price is greater than \$18.00, the arbitrageur exercises the option paying \$18.00 for the stock and uses the stock to close out the short position. This leads to a profit of \$18.79 - \$18.00 = \$0.79

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I don’t understand how in this scenario the arbitrager doesn’t need to pay interest over the 1 year on the \$20 he borrowed to short the stock.

• Ermm...why would you borrow to short the stock ? Or do you mean haircut /eq repo or something else? Commented Jun 21 at 17:43
• According to investopedia: ‘To open a short position, a trader must have a margin account and pay interest on the value of the borrowed shares while the position is open.’ Commented Jun 21 at 17:56
• Hmm, I'd just borrow the share, sell it, get cash, lend that cash to the person I borrowed it from and because cash is king tell them to also pay me some interest..same thing as a rev repo of a bond (assuming no h/c). Commented Jun 21 at 18:01
• Generally, investopedia is so full of errors that it's almost useless. Commented Jun 21 at 23:43
• The example assumes cost of carry / dividend yields are zero so you can ignore them. You can make the example a lot more complicated and include them if you want. Commented Jun 22 at 17:59