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Suppose that prices of European call options (with the same expiry time) are as shown in the table below Strike 50 70 80 Call 15

Suppose that prices of European call options (with the same expiry time) are as shown in the table below

Strike 50 70 80

Call 15 12 7

a) Find the convexity violation in these prices.

b) Show how you could exploit the convexity violation to gain an arbitrage profit.

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