55.30 53.08 Assuming cont. compounded yearly interest rate of r 3% and no dividends, find the repli- cating portfolios for each date if the stock price moves according to S(0) 60 + S(l) 57.60 + S(2) 61.06 + S(3) 64.72. Along such path of stock price movements, verify that At+1S(t+1) -FBt+1 for t 0, 1, 2. This is equality is called self-financing condition which means that the value of your portfolio stays the same after adjustments. Problem 4. (Same question but using a different method) A European binary (or Digital) option pays $5 if the stock ends above $57 after 3 months and nothing otherwise. The following 3-period binomial tree represents the monthly stock price movements (u 1.06, d 0.96): Problem 3. A European binary (or Digital) option pays $5 if the stock ends above $57 after 3 months and nothing otherwise. The following 3-period binomial tree represents the monthly stock price movements: 71.46 67.42 60 60 63.60 57.60 61.06 64.72 58.61 63.60 57.60 71.46 67.42 64.72 61.06 58.61 55.30 53.08 Assuming cont. compounded yearly interest rate of r 3% and no dividends, find the risk neutral probability q for 1 period. Use the risk neutral probability to find the premium of the European binary option.