Problem 1. A European binary (or Digital) call option pays s5 if the stock ends above S60 after 3 months and nothing otherwise. The following 3-period binomial tree represents the monthly stock price movements: 67.42 61.06 55.30 71.46 64.72 58.61 53.08 63.60 S(0-60 57.60 Assuming cont. compounded interest rate of r 32% and no dividends, find the replicating portfolios for each date if the stock prices moves according to S(0) 60S(1) 63.60S(2) 61.06 S(3) 58.61 Verify that your replicating strategy is self-financing at each step. Note that you do not need to calculate the hedge positions for the entire tree (only along the path) but you need all the prices