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Mathematics 18 Online
OpenStudy (venomblast):

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.

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