European call options with 90, 100 and 110 strikes on the same underlying asset and with the same expiration are trading at 22.50, 18.84 and 13.97, respectively. Show that the convexity of the call price as a function of the strike price is violated, leading to an arbitrage opportunity. 

Describe in detail a trading strategy that generates profit without risk.

Answer rating: 100% (QA)

To show that the convexity of the call price as a function of the strike price is violated we need to calculate the prices of two call options one wit... View the full answer