Maximum option prices such that no arbitrage is possible

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Consider a one-period trinomial tree, where the spot price is 100, and the three possible stock prices after one period are 80, 100, and 120. Use the no-arbitrage theorem to write down the conditions that the probabilities p_80, p_100, and p_120 must satisfy. Consider a call option C with strike 110 expiring at the end of the period. Determine the minimum and maximum option prices such that no arbitrage is possible. Assume zero interest rates.

Reference no: EM131566507

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