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  3. ?????? ??????? the value of a european put option

?????? ??????? The value of a European put option must satisfy the following restriction: ??0 ?????????? ???0 where ??0 is...

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Advance Math

??????

???????

  1. 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

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