2. Suppose call and put prices are given by: Strike Call Premium Put Premium 80 22 4 100 9 21 105 5 24.80 Find the convexity violations by computing the change in premium per dollar change in the strike price. What spread would you use to effect arbitrage? (Hint: 1:5:4) Demonstrate that the spread position is an arbitrage.
2. Suppose call and put prices are given by: Strike Call Premium Put Premium 80 22 4 100 9 21 105 5 24.80 Find the convexity violations by computing the change in premium per dollar change in the strike price. What spread would you use to effect arbitrage? (Hint: 1:5:4) Demonstrate that the spread position is an arbitrage.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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