Question: Could someone solve these a,b and c with explenation Option Replication: In this question, we will try to price a non-standard option using the idea

Could someone solve these a,b and c with explenation

Option Replication: In this question, we will try to price a non-standard option using the idea of payoff replication (just like what we did in the later part of Question 3)). Assume that current price of Amazon is $3200, the stock price annualized volatility is 30%, zero rate is 1% and 1-year represents the price of an Amazon share 1-year from now.

  1. Value (i.e. find the cost of) an option which has a payoff of max [(1-year - 3200)^2,0] at the end of 1-year.

  2. Value (i.e. find the cost of) an option which has a payoff of max [1-year^2-10,240,000,0] at the end of 1-year.

c. Value (i.e. find the cost of) an option which has a payoff of

$10000 1-year 3200

0 h

at the end of 1-year.

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