Problem 3 (10 points) Consider a stock process Son a tree. S starts at time i = 0 at So = 77 and it can go up or down 30% every year. The interest rate is 2%. 1. Sketch the stock process for two years. 2. Consider a European call option at a strike price of K = 88 and with an expiration date of two years. Find the value of the option at all nodes of the tree. 3. Consider now a stock process following the Black-Scholes model with a volatility of 30%. If all other parameters are the same as before in the discrete model, what will be the price of the option according to the Black-Scholes formula? Problem 3 (10 points) Consider a stock process Son a tree. S starts at time i = 0 at So = 77 and it can go up or down 30% every year. The interest rate is 2%. 1. Sketch the stock process for two years. 2. Consider a European call option at a strike price of K = 88 and with an expiration date of two years. Find the value of the option at all nodes of the tree. 3. Consider now a stock process following the Black-Scholes model with a volatility of 30%. If all other parameters are the same as before in the discrete model, what will be the price of the option according to the Black-Scholes formula