Given the call and put prices below Strike 55 60 65 Call premium 20 16 11.50 Put
Question:
Strike 55 60 65
Call premium 20 16 11.50
Put premium 9 12.75 16.45
a. What are convexity violations for the call and put premiums?
b. What spread you would you use to effect arbitrage?
c. Demonstrate that the spread position is an arbitrage.
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