Feel free to ignore my notes/comments since I don't remember what the thought process behind them were.

- Problem 1 (10 points) 1 Step Continuous Consider a stock process S on a tree. S starts at time i = 0 at So = 77 and it can go up or down 30% every year. The interest rate is 2%. PONTOR TO to up or N 1. Sketch the stock process for two years. an expira 2. Consider a European call option at a strike price of K = 88 and with an expiration date of two years. Find the value of the option at all nodes of the tree. 3. Consider now a stock process following the Black-Scholes model with a volatility of 30%. If all other parameters are the same as before in the discrete model, what will be the price of the option according to the Black-Scholes formula?

- Problem 1 (10 points) 1 step continuous Consider a stock process S on a tree. S starts at time i=0 at S0=77 and it can go up or down 30% every year. The interest rate is 2%. 1. Sketch the stock process for two years. 2. Consider a European call option at a strike price of K=88 and with an expiration date of two years. Find the value of the option at all nodes of the tree. 73. Consider now a stock process following the Black-Scholes model with a volatility of 30%. If all other parameters are the same as before in the discrete model, what will be the price of the option according to the Black-Scholes formula