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An index trades at 100. The dividend yield is 2%. The interest rate is 2% continuously compounded. (a) An European call option with strike 90

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An index trades at 100. The dividend yield is 2%. The interest rate is 2% continuously compounded. (a) An European call option with strike 90 and expiry date one year trades. Compute its lower bound. (b) Explain why the time premium for the European option is negative. Does this imply an arbitrage opportunity is available

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