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A stock is currently worth 80. Each year it goes up by 50% or down by 25%. The interest rate compounded annually is 2% (i.e.
A stock is currently worth 80. Each year it goes up by 50% or down by 25%. The interest rate compounded annually is 2% (i.e. to corresponding accumulation factor for one year is equal to = 1.02). Find the no-arbitrage price of a 2-year European call option with strike price 80 by constructing the replicating portfolio.
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