This problem set is to be turned in by Wednesday, March 24th 11:00 pm. Please present your work using
MS Word or PDF and submit online on Canvas. You may use Excel for calculation but the final solution
should be presented in MS Word or PDF.
c2 0.5(c1 + c3 )
Hint 1: Consider a portfolio where we long one option with strike price K1 , long one option with strike price
K3 , and short two options with strike price K2 .
Hint 2: Show that the payoff of the portfolio at the option maturity is always positive or zero. Then, we
can deduce the relation among current option prices.