Question: Consider a binomial model with parameters T = 1,S0 = 100,r = 0,u = d = 0.2,p (0,1). Consider the European contingent claim with payoff

Consider a binomial model with parameters T = 1,S0 = 100,r = 0,u = d = 0.2,p (0,1). Consider the European contingent claim with payoff 1 if the stock price increases, and payoff 0 if the stock price decreases. (a) Compute the replicating portfolio. (b) Compute the initial value of the replicating portfolio.

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