Question: Let S_0 = 100, K = $95 and r = 5% (continuously compounded), T = 0.5, delta = 0. Let u = 1.2, d =

Let S_0 = 100, K = $95 and r = 5% (continuously compounded), T = 0.5, delta = 0. Let u = 1.2, d = 0.8 and n = 1 (1-period binomial tree model) a) Find the premium of the European put with strike and maturity as above. b) Suppose you observe a Put price of $7. Construct an arbitrage strategy. c) Suppose you observe a Put price of $6. Construct an arbitrage strategy

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