Option Pricing. Consider a family of call options on a non-dividend-paying stock. All options are identical except from the strike price. The value of the call with strike price K is denoted by C(K). Prove the following three general relations in a market with no arbitrage opportunities K2 Ki implies C(Ki) 2 C(K2) a b K2 > K1 implies K2 - K1 2 C(Ki) -C(K2). K3 K2 K1 implies, c K3 K2 C(K2)K C(k) + K2- K1c(K3) 1 Ki The three parts carry, respectively, 20%, 30% , and 50% of the marks Option Pricing. Consider a family of call options on a non-dividend-paying stock. All options are identical except from the strike price. The value of the call with strike price K is denoted by C(K). Prove the following three general relations in a market with no arbitrage opportunities K2 Ki implies C(Ki) 2 C(K2) a b K2 > K1 implies K2 - K1 2 C(Ki) -C(K2). K3 K2 K1 implies, c K3 K2 C(K2)K C(k) + K2- K1c(K3) 1 Ki The three parts carry, respectively, 20%, 30% , and 50% of the marks