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1. Consider a 3-period binomial model with So = 8, u = 2, d = 1/u, r = 1/4. i) What is the price at

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1. Consider a 3-period binomial model with So = 8, u = 2, d = 1/u, r = 1/4. i) What is the price at time 0 of a LOOKBACK option with payoff: V3 = max S, -S3? 03 ii) What is the replicating portfolio at times 0, 1 and 2? (Hint: how many shares of stock and how much money in the bank at each time). 1. Consider a 3-period binomial model with So = 8, u = 2, d = 1/u, r = 1/4. i) What is the price at time 0 of a LOOKBACK option with payoff: V3 = max S, -S3? 03 ii) What is the replicating portfolio at times 0, 1 and 2? (Hint: how many shares of stock and how much money in the bank at each time)

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