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derivatives vertical spread, Other Engineering
Let C (K ) denote a European vanilla Call option with strike price K . Assume that all options are identical except for strike price, and strike prices satisfy K < K < K and 2K = K K+.
??Question 1 [5 marks]
What are the noarbitrage lower bound, and the noarbitrage upper bound, of the vertical spread
C(K1)C(K2 )?
Question 2 [10 marks]
Derive the functional relationship between the noarbitrage values of the two vertical spreads, C(K1)C(K2)and C(K2)C(K3).
Posted Date: 5/2/2012 12:35:35 AM  Location : United States
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