Question: 1. Consider a two-period binomial model with a European put option on a security. 1 The security has S= 100, u = 2, d =

1. Consider a two-period binomial model with a European put option

1. Consider a two-period binomial model with a European put option on a security. 1 The security has S= 100, u = 2, d = 5, the interest rate is r=-, and the strike price on the option is K = 80. a. Describe the replicating portfolio the seller of the option would have to construct at the T node. b. Show that this portfolio will exactly balance the payouts at the TT and TH nodes. 1. Consider a two-period binomial model with a European put option on a security. 1 The security has S= 100, u = 2, d = 5, the interest rate is r=-, and the strike price on the option is K = 80. a. Describe the replicating portfolio the seller of the option would have to construct at the T node. b. Show that this portfolio will exactly balance the payouts at the TT and TH nodes

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