Please do all parts!

5 (a) Explain the Binomial Model by pointing out available investment opportunities, defining parameters, and no-arbitrage conditions. (b) Price an in-the-money European Call (strike K equals 80% of underlying's share price) in in a two-period version of the Binomial model: The maturity is two years, the riskless rate is 2% per annum, the risky asset costs today 100 US Dollars and ticks up each year by 10% with probability 2/3, and otherwise ticks down by 10%. (c) For the setting in 4(b), derive the replicating portfolio on each date (t =0,1). You may use the formulas for Option delta and safe position, 1 V-V 1 uv - dv Pn = Bn = Vn-On Sn Sn u-d 1+r u-d 5 = = Here V., va are future values of the portfolio (in the case of an up or down tick of the underlying), given t = n information. 5 5 (a) Explain the Binomial Model by pointing out available investment opportunities, defining parameters, and no-arbitrage conditions. (b) Price an in-the-money European Call (strike K equals 80% of underlying's share price) in in a two-period version of the Binomial model: The maturity is two years, the riskless rate is 2% per annum, the risky asset costs today 100 US Dollars and ticks up each year by 10% with probability 2/3, and otherwise ticks down by 10%. (c) For the setting in 4(b), derive the replicating portfolio on each date (t =0,1). You may use the formulas for Option delta and safe position, 1 V-V 1 uv - dv Pn = Bn = Vn-On Sn Sn u-d 1+r u-d 5 = = Here V., va are future values of the portfolio (in the case of an up or down tick of the underlying), given t = n information. 5