problems
Let C(K) denote the European vanilla Call option with strike price K. Suppose that all options are identical except for strike price, and strike prices satisfy K_{1}23<< and 2K_{2}=K_{1}+K_{3}
problem 1
What are the no-arbitrage lower bound, and the no-arbitrage upper bound, of the vertical spreadC(K_{1})-C(K_{2})?
problem 2
Derive the functional relationship between the no-arbitrage values of the two vertical spreads, C(K_{1})-C(K_{2}) and C(K_{2})-C(K_{3}).