Question: Consider the two-period binomial model with u D 2, d D 1=2 and interest rate r D 1=4 and suppose S0 D 100. What is

Consider the two-period binomial model with u D 2, d D 1=2 and interest rate r D 1=4 and suppose S0 D 100. What is the value of the European call option with strike price 80, i.e., the option with payoff .S2 80/C. Find the stock holdings 0,

1.H/, and 1.T/ need to replicate the option exactly.

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