Two put options on the same underlying, both expiring in 1 month. Put option 1 struck...
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Two put options on the same underlying, both expiring in 1 month. Put option 1 struck at $50 is priced at $5 while put option 2 struck at $53 priced at $3. Is there an arbitrage opportunity in this setting? If so, show how to take the advantage. For simplicity, interest rate is assumed zero. Two put options on the same underlying, both expiring in 1 month. Put option 1 struck at $50 is priced at $5 while put option 2 struck at $53 priced at $3. Is there an arbitrage opportunity in this setting? If so, show how to take the advantage. For simplicity, interest rate is assumed zero.
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