Hedging a European call option using forwards and bonds. Consider a two-periods multiplicative binomial model: the time interval is one year, maturity is T=2 years, the multiplicative factors are u=1.2 and d=0.9; the yearly interest rate is such that e" = 1.1. The forward price (of delivery of the underlying stock at T=2)is FP = 121. (a) Find the present value ( at t=0) of an European call with strike K=100 and maturity T=2. (b) Describe the trading strategy that replicates this option using only bonds and forwards contracts (agreements to deliver the stock at T=2 against payment of the forward price). Hedging a European call option using forwards and bonds. Consider a two-periods multiplicative binomial model: the time interval is one year, maturity is T=2 years, the multiplicative factors are u=1.2 and d=0.9; the yearly interest rate is such that e" = 1.1. The forward price (of delivery of the underlying stock at T=2)is FP = 121. (a) Find the present value ( at t=0) of an European call with strike K=100 and maturity T=2. (b) Describe the trading strategy that replicates this option using only bonds and forwards contracts (agreements to deliver the stock at T=2 against payment of the forward price)