1. Consider the following explanation of why the BlackScholes Euro- pean call option value curve C(S,t) lies above the payoff hockey stick max(S(t) E, 0), for t < T . Since E(S(t)) = S0et , the asset price generically drifts upwards. Hence, on aver- age, the asset price will increase between time t and expiry, so the time t value is greater than max(S(t) E, 0).

   for setup above, provide no-arbitrage argument which demonstrates that the price of the call option must be the same as the risk-neutral valuation.