Question: Suppose call prices are given by 1 0 2 0 3 0 StrikePrice ( $ ) Call Premium ( $ ) 5 4 2 What

Suppose call prices are given by

10 20 30

StrikePrice

(

)

Call Premium

(

) 5 4 2

What no arbitrage property is violated? What spread position would you use to effect arbitrage? Demonstrate that spread position is an arbitrage by creating a table, which shows possible profit opportunities at the time to maturity. Assume option

s time to maturity is

1

year and continuously compounded interest rate is

4 % .

Question

2 (8

points

)

Suppose call prices are given by

1

year and continuously compounded interest rate is

\ (4 \ % \) .

Suppose call prices are given by 1 0 2 0 3 0

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