Help!
Suppose that put prices on the same stock and with the same expiration are as follows:

Strike 50 55 60

Price 7.25 10.75 14.45

Use convexity to find an arbitrage opportunity, that is construct a portfolio with V(0)=0, V(T) non-negative, and such that V(T)0 with positive probability. Hint: look carefully at the example about comparison of portfolios of calls.

Question

Help!
Suppose that put prices on the same stock and with the same expiration are as follows:

Strike  50       55         60

Price   7.25    10.75    14.45

Use convexity to find an arbitrage opportunity, that is construct a portfolio with V(0)=0, V(T) non-negative, and such that V(T)>0 with positive probability. Hint: look carefully at the example about comparison of portfolios of calls.