Lower bound for, european put option prices - potential contradiction

Finance - The lower bound for the prices of, european call options with

It would not make sense to pay more for the right to buy the underlying than the value of the underlying itself.Thus, the exercise price has to bring back to todays value, which is the Present Value of Exercise price.We observe Euro-call option prices at discrete strikes, say, C_1 C_2 C_3.

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Best indoor putting mat Proof price of the european put is bounded

If yes, on the other hand, state the action you need to take today to exploit this arbitrage opportunity. So, it is wellknown that the option prices are convex with repsect. Maximum value of a call is the current value of underlying. Consider a fourmonth European put option on a nondividendpaying stock when price. The minimum value for any option is zero. The strike price is 60, so the maximum value for a put option is the exercise price. But for European put options you have to wait till the end. If the underlying is 10 and you got the Put option to exercise at 20 than you can proof price of the european put is bounded sell. Call option gives you the right to buy an underlying asset as a fixed price. And the riskfree interest rate is 12 per annume.



No option can sell less than zero 5, european or American, the price p satisfies p geq max0. SX 1rT for the Put idea options things change. Which shows a violation of the lower bound. IS there an arbitrage opportunity, hence, kerT. What about the lower bounds, r If you have the right at 30 you can sell.

But there is one interesting point here, European Call is the the greater than the American Call option at the exercise day which is non-sense.C Max ( 0, S-X p Max ( 0, X-S same applies to European Call options, but remember that the European option has to wait to the end, thus the exercise price is the PV of the.Due to the convexity, it seems that setting the price between K_i and K_i1 equal to C_i could violate the convexity.

Boundary Conditions for Options Cogito

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For anyone who knows the payoff values for call and put options, they are also aware of minimum and maximum values for call and put options.