Question: QUESTION THREE a) At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset.

QUESTION THREE a) At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the

underlying asset. Explain what Mr. Anderson needs to do at time t=1

QUESTION THREE a) At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset. Explain what Mr. Anderson needs to do at time t=1 to keep his portfolio risk neutral and why. (5 marks) b) A stock price is currently $100 and at the end of four months it will be St. A derivative written on this stock pays off exp [s

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