# Question: Suppose call and put prices are given by Find the convexity

Suppose call and put prices are given by

Find the convexity violations. What spread would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage.

Find the convexity violations. What spread would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage.

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Suppose call and put prices are given by Find the convexity violations. What spread would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage. Suppose that to buy either a call or a put option you pay the quoted ask price, denoted Ca(K, T ) and Pa(K, T ), and to sell an option you receive the bid, Cb(K, T ) and Pb(K, T ). Similarly, the ask and bid prices for the ...The price of a 6-month dollar-denominated call option on the euro with a $0.90 strike is $0.0404. The price of an otherwise equivalent put option is $0.0141. The annual continuously compounded dollar interest rate is 5%. a. ...Repeat the previous problem assuming that the stock pays a continuous dividend of 8% per year (continuously compounded). Calculate the prices of the American and European puts and calls. Which options are early-exercised? For a stock index, S = $100, σ = 30%, r = 5%, δ = 3%, and T = 3. Let n = 3. a. What is the price of a European call option with a strike of $95? b. What is the price of a European put option with a strike of $95? c. Now ...Post your question