A non-dividend paying share is currently priced at 100. In any year the price of the share is expected to either double or halve, i.e. u= 2 and d= 1/2. The continuously compounded risk-free interest rate per annum is r, where e' = 1.25. An individual is interested in the following derivative contracts on the share, with maturity payoffs at the end of 2 years, as follows: MaxCall contract: S2-min{So, S1, S2}; MaxPut contract: max{S0, S1, S2} - $2. (a) Discuss the similarities and differences between: (i) a MaxCall contract and a European call option contract; [3 marks] (ii) a MaxPut contract and a European put option contract. [3 marks) (b) Explain, discussing any associated risks, why an individual might be interested to buy one of the following derivative contracts: (i) a MaxCall contract; [3 marks (ii) a MaxPut contract. [3 marks) (c) Discuss the advantages and disadvantages of simultaneously buying a MaxCall contract and a MaxPut contract. [3 marks) A non-dividend paying share is currently priced at 100. In any year the price of the share is expected to either double or halve, i.e. u= 2 and d= 1/2. The continuously compounded risk-free interest rate per annum is r, where e' = 1.25. An individual is interested in the following derivative contracts on the share, with maturity payoffs at the end of 2 years, as follows: MaxCall contract: S2-min{So, S1, S2}; MaxPut contract: max{S0, S1, S2} - $2. (a) Discuss the similarities and differences between: (i) a MaxCall contract and a European call option contract; [3 marks] (ii) a MaxPut contract and a European put option contract. [3 marks) (b) Explain, discussing any associated risks, why an individual might be interested to buy one of the following derivative contracts: (i) a MaxCall contract; [3 marks (ii) a MaxPut contract. [3 marks) (c) Discuss the advantages and disadvantages of simultaneously buying a MaxCall contract and a MaxPut contract. [3 marks)