8. [9 marks) Assume you are working in the context of a one-period binomial market; that today's stock price is $20, the option's strike price is $18, the continuously-compounded risk-free interest rate is 1%, there are no dividends, the time to expiry is 2 years, and stock's volatility is determined to be o=0.3. (a) [2 marks Using the forward tree construction, find the arbitrage-free price of a Euro- pean call option (b) 2 marks Use the tree to verify that the annualized standard deviation o of continu- ously compounded asset returns is o=0.3 and what is the average of the continuously compounded asset returns. (C) [2 marks) What arbitrage profit could be made if the observed call premium is 2. (d) [2 marks] What is the value of A and B for the European put? (e) (1 marks] Compare the signs of the A and B for the European put and European call. 8. [9 marks) Assume you are working in the context of a one-period binomial market; that today's stock price is $20, the option's strike price is $18, the continuously-compounded risk-free interest rate is 1%, there are no dividends, the time to expiry is 2 years, and stock's volatility is determined to be o=0.3. (a) [2 marks Using the forward tree construction, find the arbitrage-free price of a Euro- pean call option (b) 2 marks Use the tree to verify that the annualized standard deviation o of continu- ously compounded asset returns is o=0.3 and what is the average of the continuously compounded asset returns. (C) [2 marks) What arbitrage profit could be made if the observed call premium is 2. (d) [2 marks] What is the value of A and B for the European put? (e) (1 marks] Compare the signs of the A and B for the European put and European call