Assume the Black-Scholes framework. Consider two nondividend-paying stocks whose time-t prices are denoted by S₁(t) and S₂(t), respectively.

You are given:

(i) S₁(0) = 10 and S2(0) = 20.

(ii) Stock 1’s volatility is 0.18.

(iii) Stock 2’s volatility is 0.25.

(iv) The correlation between the continuously compounded returns of the two stocks is −0.40.

(v) The continuously compounded risk-free interest rate is 5%.

(vi) A one-year European option with payoff max{min[2S₁(1), S₂(1)] − 17, 0} has a current (time-0) price of 1.632.

Consider a European option that gives its holder the right to sell either two shares of Stock 1 or one share of Stock 2 at a price of 17 one year from now.

Calculate the current (time-0) price of this option.

(A) 0.67

(B) 1.12

(C) 1.49

(D) 5.18

(E) 7.86