I am working on an assignment which I can collaborate with someone (as specified)...

I have missed a few classes due to illness and would appreciate some help from a tutor that can offer step by step clarification and understanding.

Instructions: I Work individually or in groups of '2 on this assignment. Submit one assignment per group. e All resultsf'answersfdiscussion should be contained in the hardcopy submitted for grading. Any spreadsheets or computer programs used to generate the results should he uploaded to dropbox. e Clarity1 style, and presentation will oount for a portion of the assigrunent grades. 1. Suppose that a non-dividendpaying stockls initial price is $51], and suppose that the time-T stock price is 40 with probability l 45 with probability E Sr = 5E] with probability E 55 with probability EU with probability 112: [a] Compute the odf and quantile function for the future stock price. {b} Plot the quantile function. [c] Suppose the set of riskneutral probabilities is [111, gmqggdlg] = {W1 m, E1 m, 111}. That is:I the riskneutral probability that Sr = 40 is g], the riskneutral prrobabihtyr that Sr = 45 is 91;, etc. Furthermore assume that the riskfree rate of interest is 5%, so that $1 invested today grows to $1.05 at time T. Compute i. the price of a European call option written on this stock with strike price $56 that matures at time T. ii. the initial cost of a portfolio that is long one share and short one call option {this is a covered call position}. [:1] Simulate 1,33] time-T stock prices {do NOT use the risk-neutral probabilities for the simulation] and convert these to simulated prot values of the i} long 1 share; and ii} covered call positions. Using the simulated values i. make histograms of the simulated prots and briefly compare. ii. estimate the expected ".I'Eifarll'i'i.1 standard deviation of returns and hence the risk adjusted returns for each of the two portfolios. [e] In this caseJ would you decide to hedge the long stock position by writing a covered call? Briey justify your decision