Question: = 1. Consider the two-period binomial model with So 4, u = 2, d 0.5 and take the interest rate r = 0.25. Consider the

= 1. Consider the two-period binomial model with So 4, u

= 1. Consider the two-period binomial model with So 4, u = 2, d 0.5 and take the interest rate r = 0.25. Consider the Asian call option which expires at time N = 2 and has strike K = 4. The payoff of the Asian call option at N equals N 1 Vn = max(An K,0) = max S; - K,0). 'N i=0 Compute (a) the arbitrage free price Vo of the option at time 0; (b) the number of stocks Ao in the replicating strategy of the option at time 0

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