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problems: Let C (K) denote a European vanilla Call option with strike price K. Suppose that all options are identical except for strike price, and strike prices satisfy K1< K2 < K3 and 2K2 = K1 + K3

problem 1: What are the no-arbitrage lower bound and the no-arbitrage upper bound of the vertical spread C (K1) - C (K2)?

problem 2: Derive the functional relationship among the no-arbitrage values of the two vertical spreads C (K1) - C (K2) and C (K2) - C (K3).

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91808

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