Question: = Consider a one-period binomial model with initial stock price So = 50, terminal stock price ST = 60 in the up case, terminal stock

= Consider a one-period binomial model with initial stock price So

= Consider a one-period binomial model with initial stock price So = 50, terminal stock price ST = 60 in the up case, terminal stock price ST 45 in the down case, ini- tial bond price Ao = 100, and terminal bond price AT = 110. In this model, the probability that the stock price goes up at terminal time T is p = 0.2. a. (5) Does the model satisfy the principle of no-arbitrage ? Consider a call option with strike price K = 52. b. (5) What is the expected payoff of this call option? c. (5) What is a replicating portfolio for the option? d. (5) What is the price of the option? e. (5) What is the expected return of the option? = Consider a one-period binomial model with initial stock price So = 50, terminal stock price ST = 60 in the up case, terminal stock price ST 45 in the down case, ini- tial bond price Ao = 100, and terminal bond price AT = 110. In this model, the probability that the stock price goes up at terminal time T is p = 0.2. a. (5) Does the model satisfy the principle of no-arbitrage ? Consider a call option with strike price K = 52. b. (5) What is the expected payoff of this call option? c. (5) What is a replicating portfolio for the option? d. (5) What is the price of the option? e. (5) What is the expected return of the option

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