2. You are given the following information about a securities market: There are three nondividend-paying stocks, X, Y, and Z. The current prices for X,Y and Z are all 100. The yearly compounded risk-free interest rate is 1%. There are four possible outcomes for the prices of X, Y, and Z one year from now: (120, 110, 110) :w=wi (110, 120, 100) :w=w2 (X7(W), Y(w), 2(w)) = (90, 80, 100 :w=W3 (80, 90,95) . = : o and . The market is complete, and you are even told that pi p2 = Let 30 (a) V.CX be the current price of a call option on X, and (b) V.PY be the current price of a put option on Y, and (c) v.8.2 be the current price of a straddle on Z, which at time T = 1 pays V 8,2 = 21 - K. All options expire in one year, and have a common strike price of K = 100. Let V. Exchange be the current price of a financial instrument, which at time T = 1 pays v Exchange = Xi - Yi+Z Compute the risk-neutral measure, V.C.X, V.PY, V.8.2, and V.Exchange (80 pts.) 2 3 2. You are given the following information about a securities market: There are three nondividend-paying stocks, X, Y, and Z. The current prices for X,Y and Z are all 100. The yearly compounded risk-free interest rate is 1%. There are four possible outcomes for the prices of X, Y, and Z one year from now: (120, 110, 110) :w=wi (110, 120, 100) :w=w2 (X7(W), Y(w), 2(w)) = (90, 80, 100 :w=W3 (80, 90,95) . = : o and . The market is complete, and you are even told that pi p2 = Let 30 (a) V.CX be the current price of a call option on X, and (b) V.PY be the current price of a put option on Y, and (c) v.8.2 be the current price of a straddle on Z, which at time T = 1 pays V 8,2 = 21 - K. All options expire in one year, and have a common strike price of K = 100. Let V. Exchange be the current price of a financial instrument, which at time T = 1 pays v Exchange = Xi - Yi+Z Compute the risk-neutral measure, V.C.X, V.PY, V.8.2, and V.Exchange (80 pts.) 2 3