Suppose call and put prices are given by Find the convexity violations. What spread would you use

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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.

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Derivatives Markets

ISBN: 9789332536746

3rd Edition

Authors: Robert McDonald

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Question Posted: Aug 12, 2015 02:37 AM

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Suppose call and put prices are given by Find the convexity violations. What spread would you use

Question:

Strike 80 100 105 Call premium 22 95 Put premium 21 2480

Step by Step Answer:

Both equations 919 and 920 of the textbook are violated To see this let us calculate the values We h...View the full answer

Derivatives Markets

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