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2. The value of a share today is N$10. It is thought that in two week's time the share will be worth either N$12
2. The value of a share today is N$10. It is thought that in two week's time the share will be worth either N$12 or N$9. An option will pay off N$0.5 if the share has value N$12 and N$0.05 if the share has value N$9. The risk free interest rate over the two - week period has a multiplying factor 1.001. Assuming the value today of the risk free asset (e.g cash) is N$1, set up a portfolio to replicate this option and hence calculate the value of the option today. [10]
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