r = 4% (cc), T = 4 months. Given the following table of option prices Strike...

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r = 4% (cc), T = 4 months. Given the following table of option prices Strike Price Call Price K₁ = 69.00 K₂ = 73.00 K3 = 74.00 a) Find A so that K₂ = AK₁ + (1 - X) K3. b) Is there a possible arbitrage? Justify your answer (by constructing an arbitrage portfolio if possible). 6.29 5.16 4.50 r = 4% (cc), T = 4 months. Given the following table of option prices Strike Price Call Price K₁ = 69.00 K₂ = 73.00 K3 = 74.00 a) Find A so that K₂ = AK₁ + (1 - X) K3. b) Is there a possible arbitrage? Justify your answer (by constructing an arbitrage portfolio if possible). 6.29 5.16 4.50

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a We want to find A such that K2 AK1 1 XK3 First lets rewrite the equation as AK1 1 XK3 K2 Now we ca... View the full answer