Question: 3. (a) Within the Binomial Tree model, describe the dynamic of the spot price and explain the risk-neutral valuation approach to valuing a European option

3. (a) Within the Binomial Tree model, describe the dynamic of

3. (a) Within the Binomial Tree model, describe the dynamic of the spot price and explain the risk-neutral valuation approach to valuing a European option using a one-step binomial tree. (b) Explain carefully the difference between selling a call option and buying a put option. Write down the two payoffs and draw their graphs. [3]

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