Question: Consider two call options on a security whose present price is 110. Suppose that both call options have the same expiration time T = 0.5;

Consider two call options on a security whose present price is 110. Suppose that both call options have the same expiration time T = 0.5; one has strike price 100 and costs 20, whereas the other has strike price 110 and costs C. Suppose that the continuous compounding rate is 10%. Assuming that an arbitrage is not possible, give a lower bound on C. Hint: use the inequality C(K,T)C(K+s,T)se^(rT)

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