European call options with 90, 100 and 110 strikes on the same underlying asset and with the
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Question:
European call options with 90, 100 and 110 strikes on the same underlying asset and with the same expiration are trading at 22.50, 18.84 and 13.97, respectively. Show that the convexity of the call price as a function of the strike price is violated, leading to an arbitrage opportunity.
Describe in detail a trading strategy that generates profit without risk.
Related Book For
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown
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