4. In class, we discussed that an increase in stock volatility causes the value of put opti Use risk-neutral probability approach and the following infom "probability approach and the following information to illustrate the intuition. BADE put: European put option on stock CWC which trades at $30 per share, with exercise price year to expiration, and 5% per year risk-free rate. The stock will either double or halve in one year. Now let's look at a NEW put with everthing else the same except that the underlying stock price will either triple or drop to one-third in one year. a) Calculate the risk neutral probability of the up and down states and the payoff to put options in each state and put option values for both BASE and NEW put options. BASE NEW b) Discuss the intuition why (and how) increases in volatility lead to increases in put option value. Page 6