3. (European option.) Consider again the data given in the previous question. a. Use 5 1...

3. (European option.) Consider again the data given in the previous question.

a. Use Δ 5 1 year to discretize the system.

b. Generate five sets of standard normal random numbers with five random numbers in each set. How do you know that these five trajectories are arbitrage-free?

c. Calculate the value of the following option using these trajectories. The strike is 0.95, the expiration is 3 years, and the European style applies.