Consider a two-step (N = 2) binomial model for the price of a risky asset, with S(0) = $50, u = 2% and d=-1%. The risk-free interest rate per period is 1%. (a) (4 Points) Verify that there are no arbitrage opportunities. (b) (6 Points) Consider the European option of exercise date 2 which allows its holder to buy the stock with the average price 5 {(s(0) + S(1)+ s(2), i.e. the corresponding payoff is (S(2)-5)+. Describe all the scenarios under which you will not exercise this option. (c) (10 Points) Determine the price using the risk-neutral measure. (d) (10 Points) Can this option be replicated? If so, specify the corresponding strategy. Consider a two-step (N = 2) binomial model for the price of a risky asset, with S(0) = $50, u = 2% and d=-1%. The risk-free interest rate per period is 1%. (a) (4 Points) Verify that there are no arbitrage opportunities. (b) (6 Points) Consider the European option of exercise date 2 which allows its holder to buy the stock with the average price 5 {(s(0) + S(1)+ s(2), i.e. the corresponding payoff is (S(2)-5)+. Describe all the scenarios under which you will not exercise this option. (c) (10 Points) Determine the price using the risk-neutral measure. (d) (10 Points) Can this option be replicated? If so, specify the corresponding strategy