advanced financial mathematics

Newt \& Co. own non-divided paying Orange stock with the continuous compounded risk-free interest rate at 4%. The price of the stock modelled by the 1-period binomial tress as in figure 1. As an asset executive at Newt \& Co, you are responsible to do an investment on the following two options: a. A European call option expiring in one year on Orange stock has strike price of RM40.00. Determine the number of shares of the stock in the replicating portfolio for the call option. (8 marks) b. A European put option expiring in one year on Orange stock has strike price of RM45.00. Determine the amount of money borrow in the replicating portfolio for the put option. (7 marks)