Question: Question 2. The Binomial Option Pricing Question 2 below is based on the following information: The spot price of SPY is currently $200 (i.e. S

Question 2. The Binomial Option Pricing Question 2 below is based on the following information:

The spot price of SPY is currently $200 (i.e. S₀ = $200).
The volatility of SPY is 60% (i.e. = 0.60).
Options sellers (such as Goldman Sachs) are interested in selling a European Call option on SPY with maturity of 1 year (i.e. t or T = 1).
The risk-free rate with continuous compounding is 4% per annum (i.e. r = 0.04).

Question 2 - Part (A) [Arbitrage Portfolio Approach]

Based on the information above, apply the Arbitrage Portfolio approach with one-step binomial tree and calculate the value of a European CALL option on SPY with an exercise/strike price of $230 (K = $230) and maturity of 1 year (T = 1).

Question 2 - Part (B) [Risk-Neutral Valuation Approach]

Based on the information above, apply the Risk-Neutral Valuation approach with onestep binomial tree and calculate the value of a European CALL option on SPY with an exercise/strike price of $230 (K = $230) and maturity of 1 year (T = 1).

Question 2 - Part (C) True or False

True or False?

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