Suppose that c1 c2 and c3 are the prices of european call, Corporate Finance

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Suppose that c1 c2 and c3 are the prices of european call

Suppose that c₁, c₂, and c3 are the prices of European call options with strike prices K₁, K₂, and K₃, respectively, where K₃ > K₂ > K₁ and K₃ K₂ = K₂ K₁. All options have the same maturity. Show that

(Hint: Consider a portfolio that is long one option with strike price K₁, long one option with strike price K₃, and short two options with strike price K₂.)

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Corporate Finance: Suppose that c1 c2 and c3 are the prices of european call

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Corporate Finance: Suppose that c1 c2 and c3 are the prices of european call

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