Suppose call and put prices are given by Find the convexity violations. What spread would you use

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Suppose call and put prices are given by

Find the convexity violations. What spread would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage.

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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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Question Posted: Dec 18, 2015 05:03 AM

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Suppose call and put prices are given by Find the convexity violations. What spread would you use

Question:

Strike Call premium 18 14 Put premium 7 0.75 14.45 50 55 60 9.50

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Both equations 919 and 920 of the textbook are violated To see this ...View the full answer

Derivatives Markets

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