Given the call and put prices below Strike 55 60 65 Call premium 20 16 11.50 Put

Question:

Given the call and put prices below

Strike 55 60 65

Call premium 20 16 11.50

Put premium 9 12.75 16.45

a. What are convexity violations for the call and put premiums?

b. What spread you would you use to effect arbitrage?

c. 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: Jan 24, 2018 06:27 AM

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Given the call and put prices below Strike 55 60 65 Call premium 20 16 11.50 Put

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Derivatives Markets

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