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Suppose that c1,c2 and c3 are the prices of European call options with strike prices K1,K2 and K3, respectively, where K3>K2>K1 and K3K2= K2K1. All
Suppose that c1,c2 and c3 are the prices of European call options with strike prices K1,K2 and K3, respectively, where K3>K2>K1 and K3K2= K2K1. All option have the same maturity. Show that c20.5(c1+c3) This condition must be satisfied by all European option prices with the same maturity, and is known as the butterfly arbitrage condition
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Trade Union Finance
Authors: Marick F. Masters, Raymond Gibney
1st Edition
1032371382, 978-1032371382
