5. Consider the one period binomial model for option pricing. Suppose that the underlying share has price So = 10 at time 0, and can either move up to s") = 12 or move down to s") = 9 at time 1. There is also a bank account that pays interest at the rate R=0.1 per period. (a) Is there an arbitrage opportunity in this market? Justify your answer. Now consider a portfolio that contains A shares and an amount 8 of money in the bank at time 0. (b) Determine the values of A and B such that this portfolio replicates a European call option with strike K = 10 expiring at time 1. (c) Hence determine the fair price Co of this call option at time 0. (d) Suppose that the market price chikt of this option at time 0 is less than Co. Explicitly describe an arbitrage opportunity. 5. Consider the one period binomial model for option pricing. Suppose that the underlying share has price So = 10 at time 0, and can either move up to s") = 12 or move down to s") = 9 at time 1. There is also a bank account that pays interest at the rate R=0.1 per period. (a) Is there an arbitrage opportunity in this market? Justify your answer. Now consider a portfolio that contains A shares and an amount 8 of money in the bank at time 0. (b) Determine the values of A and B such that this portfolio replicates a European call option with strike K = 10 expiring at time 1. (c) Hence determine the fair price Co of this call option at time 0. (d) Suppose that the market price chikt of this option at time 0 is less than Co. Explicitly describe an arbitrage opportunity