Question: For t 0, let S(t) be the time-t price of a stock. You are given: (i) S(0) = 15. (ii) The stock pays dividends

For t ≥ 0, let S(t) be the time-t price of a stock. You are given:

(i) S(0) = 15.

(ii) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%.

(iii) The continuously compounded risk-free interest rate is 6%.

(iv) The price of an arithmetic average price 3-year 15-strike European call option is 1.5.

The payoff of the call option is based on the ending stock price every year, i.e.,

Payoff = S(1) + S(2) + S(3) 3 - 15) +

Calculate the price of an arithmetic average price 3-year 15-strike European put option.

Payoff = S(1) + S(2) + S(3) 3 - 15) +

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