I have following question, it should be pretty easy, but this subject is still pretty new for me.
Given a market where calls of any strike price can be bought and sold. Assume that the interest rate for depositing or borrowing money is zero.
- Show that if there is a call of strike price K, maturity N and price C such that
S_0represents the price of the underlying asset at time 0), then this allows arbitrage.
- Show that
C<(S_0-K)_+(positive part) also leads to an arbitrage opportunity.
Thanks in advance!