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1) Explain carefully, with numerical examples, how an arbitrageur could make riskless profit if the relationships expressed in upper and lower bounds for options prices

1) Explain carefully, with numerical examples, how an arbitrageur could make riskless profit if the relationships expressed in upper and lower bounds for options prices (call or put) are not true.

2) Discuss the no-arbitrage and risk-neutral valuation assumptions used for pricing of options.

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1 Suppose the upper and lower bounds for options prices are not true meaning there is a mispricing in the options market Lets consider a hypothetical ... blur-text-image

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