Continuous compounding is used.

Continuous compounding is used.

Continuous compounding is used.

Continuous compounding is used.

Bonus Problem (Optional, 30 marks) The current price of an asset is $100 and the asset pays continuous dividend at an annual dividend yield rate q=3% The future price movement of this asset in the coming year is simulated by 2-period binomial tree model (1 period =6 months) with u=1.1 and d=0.8 (they are the adjusted growth rate due to the effect of dividend). The annual riskfree interest rate is r=6% Question Suppose that a 1-year European put option on this asset is currently sold at $9.6 and the strike price of the put option is $95, identify an arbitrage opportunity if any. Provide full justification to your answer. Bonus Problem (Optional, 30 marks) The current price of an asset is $100 and the asset pays continuous dividend at an annual dividend yield rate q=3% The future price movement of this asset in the coming year is simulated by 2-period binomial tree model (1 period =6 months) with u=1.1 and d=0.8 (they are the adjusted growth rate due to the effect of dividend). The annual riskfree interest rate is r=6% Question Suppose that a 1-year European put option on this asset is currently sold at $9.6 and the strike price of the put option is $95, identify an arbitrage opportunity if any. Provide full justification to your