In each case identify the arbitrage and demonstrate how you would make money by creating a table showing your payoff. a. Consider two European options on the same stock with the same time to...

In each case identify the arbitrage and demonstrate how you would make money by creating a table showing your payoff.

a. Consider two European options on the same stock with the same time to expiration. The 90-strike call costs $10 and the 95-strike call costs $4.

b. Now suppose these options have 2 years to expiration and the continuously compounded interest rate is 10%. The 90-strike call costs $10 and the 95- strike call costs $5.25. Show again that there is an arbitrage opportunity. (Hint: It is important in this case that the options are European.)

c. Suppose that a 90-strike European call sells for $15, a 100-strike call sells for $10, and a 105-strike call sells for $6. Show how you could use an asymmetric butterfly to profit from this arbitrage opportunity.