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In, out and the vanilla · Part 2 of 3
One-year calls on a stock at $100 have a strike of $100; rates are zero and volatility is 20%, so the vanilla call is worth $7.97. Barrier versions have a barrier at $90, monitored continuously.
A dealer quotes the down-and-in call at $1.60. At what price must it quote the down-and-out to avoid an arbitrage?
Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.
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