Question: Describe (in words) the distribution of replicating errors. Make a plot of this distribution. Describe (in words) the value of the replicating portfolio

Describe (in words) the distribution of replicating errors.

• Make a plot of this distribution.

• Describe (in words) the value of the replicating portfolio and the value of the theoretical call as a function of the underlying at time T.

• Make a plot of the value of the replicating portfolio and the value of the theoretical call as a function of the underlying at time T.

• Investigate the effect of changing the crediting rate, interest rates, volatility, etc

120.00 100.00 80.00 60.00 40.00 20.00 0.00 0.00 50.00 CBS(T) 100.00 J 150.00 200.00 250.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 -20.00 0.00 50.00 Crep(T) 100.00 150.00 200.00 250.00 250 200 150 100 50 0 -7.08 -6.47 -5.87 -5.26 -4.66 -4.05 -3.44 Frequency -2.84 -2.23 -1.62 -1.02 -0.41 0.20 10 na 0.80 1.41 2.01 2.62 3.23 3.83 4.44

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