Exercise 8.7 The following investment is being offered on a security whose current price is s. For an initial cost of s and for the value B of your choice(provided that 0 K, where S(1) is the price of the security at the end of one year. In other words, at the price of capping your maximum return at time 1 you are guaranteed that your return at time l is at least l + times your origi- nal payment. Show that this investment (which can be bought or sold) does not give rise to an arbitrage when K is such that where CCS, , K, , r) is the Black-Scholes formula. Exercise 8.7 The following investment is being offered on a security whose current price is s. For an initial cost of s and for the value B of your choice(provided that 0 K, where S(1) is the price of the security at the end of one year. In other words, at the price of capping your maximum return at time 1 you are guaranteed that your return at time l is at least l + times your origi- nal payment. Show that this investment (which can be bought or sold) does not give rise to an arbitrage when K is such that where CCS, , K, , r) is the Black-Scholes formula