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Chrome File Edit View History Bookmarks People Window Help 99% [$3. Sun 1:39 PM Christian David Pino Q E ChocQuibTown - P: x Jaime Bayly Show x UBC Files Home * Homework Help - ( x COEC-COMM371_ X New Tab C 0 File | file:///Users/ChristianDavidPino/Downloads/COEC-COMM371_W2018_Marked_HW_3%20(1).pdf Br 2h Ra PROBLEM: [100 marks] OPTION PRICES AND RETURNS YO Assume that the price of stock SteadyWheels can be described by a binomial model. In every period, the price of stock SteadyWheels may increase by a factor u or decrease by a factor d. The up shock is u = 1.20, the down shock is d = 0.90, and the risk-free rate is 2h So r = 0.01 per period. The probability of an up shock is 0.5. The current price (t = 0) of the Steady Wheels stock is So = $35.00. This means that the evolution of the stock price for the next two periods is described by 2h St t= 0 t= 1 50.40 Po 42.00 35.00 37.80 31.50 3 h 28.35 3h 3 h Ibiza Ozun COEC-COMM3....pdf COEC-COMM3....pdf Show All x COEC-COMM3....xIsx COEC-COMM3....pdf XChrome F e File Edit View History Bookm arks People Window 4) 09% . Sun 1:39 PM Christian David Pino Q ChocQuibTown - X Jaime Bayly Show Files Homework Help ( x COEC - COMMIT Home @ A File file : / / Users / Christian David Ping Downloads / COEC - COMM371 W 2018 Marked HW 3% 20 ( 71 . pdf ( 2 ) 14 marks / Consider a Bur opean call option that expires in two periods with strike price $30 00 . Find the payoffs of the European call option at maturity ( b ) ( 24 marks Using a replication argument , compute the price of the European call option at t = 0 ( C ) 14 marks / Consider a European put option that expires in two periods with strike price $30 00 . Find the payoffs of the European put option at maturity ( d ) ( 24 marks / Using a replication argument , compute the price of the European put option at t = 0 ( e ) 14 marks Use your answers in p arts ( b ) and ( d ) to verify that the Put - Call Parity holds ( Do not use continuous compounding to compute the present val present value of the strike price ) ( ) ( 12 marks / Compute the he expected value and the standar I deviation of the stock return over the entire two- period interval ( from t - to t - 2 ) ( 8 ) ( 12 marks / Compute the expected value and the standard deviation of the call opti option return over the entire two- period interval ( from t - O to t = 2 ) ( * ) ( 12 marks / Compute the expected value and the standard deviation of the put option return over the entire two - period interval ( from t - O to t - 2 ) ( 1 ) 14 marks / Comment on the differences of the three investment opportunities in terms of expected return and risk @ COEC - COMM3 . pot I COEC - COMM3 . X SX * ) COEC - COMM . pdf COEC COMM3 . pdf show All I X