Suppose Microsoft stock sells for 100 while Netscape sells for 50. Three possible outcomes of a court case will have the following impact on the two stocks.

Microsoft Netscape 1 (win) 120 30 2 (draw) 110 55 3 (lose) 84 60 What should we be willing to pay for an option to buy Netscape for 50 after the court case is over? Answer this question two ways: (i) find a probability distribution so that the two stocks are martingales, (ii) show that by using cash and buying Microsoft and Netscape stock one can replicate the option.