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- The value of a European put option must satisfy the followingrestriction:
??0 ?????????? ???0
where ??0 is the current put price, ??0 isthe current price of the underlying stock, ?? is the exerciseprice, ?? > 0 is the annualised continuously compoundedrisk-free rate, and ?? is the time till expiration. Prove bycontradiction that the above arbitrage restriction must hold, i.e.show that if the condition does not hold, there is an arbitrageopportunity
