Financial Economics. For exercise 2, use the hedge ratio formula to solve

Exercise 1. In a three period (two step) binomial model with u = 1.05, d = .9, and r-.05 price a call option and a put option using replicating portfolios. Does put-call parity hold? Exercise 2. What happens to the hedge ratio as the stock price goes up? What happens as it goes down? lim =?: linn ? Exercise 3. A stock w either go up to uS or down to dS next period. The risk-free rate is . Use replicating portfolios to derive the premium on a futures contract with futures price F What would the futures price need to be for this premium to equal zero? Exercise 1. In a three period (two step) binomial model with u = 1.05, d = .9, and r-.05 price a call option and a put option using replicating portfolios. Does put-call parity hold? Exercise 2. What happens to the hedge ratio as the stock price goes up? What happens as it goes down? lim =?: linn ? Exercise 3. A stock w either go up to uS or down to dS next period. The risk-free rate is . Use replicating portfolios to derive the premium on a futures contract with futures price F What would the futures price need to be for this premium to equal zero