Homework Assignment 2 (4 points) (a) Explain each of the following terms in the context of the Discrete Time Market Model: (i) long position in a risk-free asset (ii) no-arbitrage principle (iii) forward contract (iv) put-call parity (b) Sketch the graph of the payoff for a long call option, a short call option, a long put option, and a short put option on a stock, assuming each of these options has the strike price K. (Plot these four graphs in separate diagrams, each against the stock price S(T) at the exercise time T.) (c) Recall that the portfolio (r(n), y(n)) indicates the mumber of shares and secure assets held by an investor between time n- 1 and n. (i) State the definition of a self-financing investment strategy. (ii) State the definition of an admissable investment strategy. Homework Assignment 2 (4 points) (a) Explain each of the following terms in the context of the Discrete Time Market Model: (i) long position in a risk-free asset (ii) no-arbitrage principle (iii) forward contract (iv) put-call parity (b) Sketch the graph of the payoff for a long call option, a short call option, a long put option, and a short put option on a stock, assuming each of these options has the strike price K. (Plot these four graphs in separate diagrams, each against the stock price S(T) at the exercise time T.) (c) Recall that the portfolio (r(n), y(n)) indicates the mumber of shares and secure assets held by an investor between time n- 1 and n. (i) State the definition of a self-financing investment strategy. (ii) State the definition of an admissable investment strategy