Show that when the European call price is a convex function of the asset price, the elasticity
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Show that when the European call price is a convex function of the asset price, the elasticity of the call price is always greater than or equal to one. Give the financial argument to explain why the elasticity of the price of a European option increases in absolute value when the option becomes more out-of-themoney and closer to expiry. Can you think of a situation where the European put’s elasticity has absolute value less than one, that is, the European put option is less risky than the underlying asset?
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