Suppose the current time is 0. Consider two European put options on the same underlying stock and
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Suppose the current time is 0. Consider two European put options on the same underlying stock and the same maturity date T, but with different strike prices K1 and K2, where K1 ≤ K2. The prices of the above options are denoted by P(K1) and P(K2), respectively.
Use no-arbitrage arguments to show that
Transcribed Image Text:
P(K₁) P(K₂) VI K₁ K₂
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