Footnote 1 of this chapter shows that the correct discount rate to use for the real-world expected payoff in the case of the call option considered in Figure 13.1 is 55.96%. Show that if the option is a put rather than a call the discount rate is -70.4,. Explain why the two real-world discount rates are so different.

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Figure 13.1 Stock price movements for numerical example in Section 13.1. Stock price $20 Stock price $22 Option payoff = $1 Stock price = $18 Option payoff -$0