= 2. A European call option with strike $20 and expiry in 90 days is currently available for $2.20. The underlying asset has current value S(0) $18. The yearly continuously compounding interest rate is 3%. (a) Calculate the daily implied volatility correct to four significant figures. (b) An Arrow-Debreu security has the same underlying asset and time to expiry as the European call, and in a six-step model pays $1 at state j = 3. Use a binomial tree to calculate the premium of this Arrow-Debreu security. (c) Which state price is equal to the Arrow-Debreu security premium? Use a formula to calculate this state price and show that it is equal to your solution in part (b). = 2. A European call option with strike $20 and expiry in 90 days is currently available for $2.20. The underlying asset has current value S(0) $18. The yearly continuously compounding interest rate is 3%. (a) Calculate the daily implied volatility correct to four significant figures. (b) An Arrow-Debreu security has the same underlying asset and time to expiry as the European call, and in a six-step model pays $1 at state j = 3. Use a binomial tree to calculate the premium of this Arrow-Debreu security. (c) Which state price is equal to the Arrow-Debreu security premium? Use a formula to calculate this state price and show that it is equal to your solution in part (b)