Question: Suppose put prices are given by Strike 50 55 Put Premium 7 14 What no arbitrage property is violated? What spread position would you use

Suppose put prices are given by

Strike 50 55

Put Premium 7 14

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%.

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