Bonus Problem 2 (Optional, 25 marks) The current price of a continuous dividend paying asset is $60. The price movement of this asset in the coming 6 months is simulated by 2-period forward tree model. It is given that The annual dividend yield rate of the asset is 3%. The volatility of the asset is 24%. The annual riskfree interest rate is 2%. (a) Alternatively, one may model the price movement of the asset using CRR model. Explain briefly why the forward tree model is more suitable in this scenario. (b) We consider a 6-month chooser options which the holder can decide whether the option is European call option or European put option after 3 months (i.e. If the holder declares the option to be call (resp. put)option after 3 months, then the terminal payoff of the chooser option at maturity date is max(ST-X,0) (resp. max(X ST, 0)). It is given that the strike price of the chooser option is $55. Calculate the current price of the chooser option using risk neutral valuation principle. Bonus Problem 2 (Optional, 25 marks) The current price of a continuous dividend paying asset is $60. The price movement of this asset in the coming 6 months is simulated by 2-period forward tree model. It is given that The annual dividend yield rate of the asset is 3%. The volatility of the asset is 24%. The annual riskfree interest rate is 2%. (a) Alternatively, one may model the price movement of the asset using CRR model. Explain briefly why the forward tree model is more suitable in this scenario. (b) We consider a 6-month chooser options which the holder can decide whether the option is European call option or European put option after 3 months (i.e. If the holder declares the option to be call (resp. put)option after 3 months, then the terminal payoff of the chooser option at maturity date is max(ST-X,0) (resp. max(X ST, 0)). It is given that the strike price of the chooser option is $55. Calculate the current price of the chooser option using risk neutral valuation principle