Question 1

a. List the parameters that determine the value of a call option. For each parameter, state whether an increase in the parameter value causes the call option value to increase or decrease

b. List the parameters that determine the value of a put option. For each parameter state whether an increase in the parameter value causes the put option value to increase or decrease

c. it is difficult for individuals to borrow at the risk-free rate. Explain how you may replicate a free loan you are borrowing with the help of options

d. In an economy that does not allow short sales of stock but allows trading in puts and calls, explain how you may replicate a short position in a stock