Calls and Puts Arbitrage

Tags: #Financial #Economics

Equation

$$K_{1} < K_{2} < K_{3} \\ K_{2} = \lambda K_{1} + (1 - \lambda) K_{3} \\ \lambda = \frac{K_{3} - K_{2}}{K_{3} - K_{1}}$$

Latex Code

                                 K_{1} < K_{2} < K_{3} \\
K_{2} = \lambda K_{1} + (1 - \lambda) K_{3} \\
\lambda = \frac{K_{3} - K_{2}}{K_{3} - K_{1}}

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Introduction

Equation

$K_{1} < K_{2} < K_{3} \\ K_{2} = \lambda K_{1} + (1 - \lambda) K_{3} \\ \lambda = \frac{K_{3} - K_{2}}{K_{3} - K_{1}}$

Latex Code

            K_{1} < K_{2} < K_{3} \\
            K_{2} = \lambda K_{1} + (1 - \lambda) K_{3} \\
            \lambda = \frac{K_{3} - K_{2}}{K_{3} - K_{1}}

Latex code for the Calls and Puts Arbitrage. Three different options have strike prices K1, K2, K3 and K1 < K2 < K3 holds. An important formula for determining arbitrage opportunities comes from the following equations.

$K_{1}$ : Strike price of option 1
$K_{2}$ : Strike price of option 2
$K_{3}$ : Strike price of option 3