In this problem, you are asked to price an Asian option using the simulation method we talked about in class. Suppose that the stock price follows Geometric Brownian Motion dSt = uStdt + oS dB. The initial stock price So is $10. The drift u = 15% and the volatility o = 40%. The continuously-compounded riskfree rate r is 5%. These are exactly the same parameters you have for Problem 5 of Homework 1. Consider an Asian put option on the stock with maturity T = 1 and strike price K = $10. The average stock price is calculated using the closing stock price of each trading day. That is, letting N = 252 and At =T/N, the average stock price is defined as Savg = Sat + S2At +...+ Snat N To ensure the reproducibility of your results, you can set random seed in Matlab using mng('default'). (a) (8 points) Simulate 100,000 independent paths of the pseudo-price process So, at, aat, ... , Nat under d = rdt+odB, So = So. Compute the pseudo-price average as at + aat + ... + Nat N (b) (8 points) Calculate the current price of this Asian option using the risk-neutral pricing formula ETTE (max(K avg,0)] In this problem, you are asked to price an Asian option using the simulation method we talked about in class. Suppose that the stock price follows Geometric Brownian Motion dSt = uStdt + oS dB. The initial stock price So is $10. The drift u = 15% and the volatility o = 40%. The continuously-compounded riskfree rate r is 5%. These are exactly the same parameters you have for Problem 5 of Homework 1. Consider an Asian put option on the stock with maturity T = 1 and strike price K = $10. The average stock price is calculated using the closing stock price of each trading day. That is, letting N = 252 and At =T/N, the average stock price is defined as Savg = Sat + S2At +...+ Snat N To ensure the reproducibility of your results, you can set random seed in Matlab using mng('default'). (a) (8 points) Simulate 100,000 independent paths of the pseudo-price process So, at, aat, ... , Nat under d = rdt+odB, So = So. Compute the pseudo-price average as at + aat + ... + Nat N (b) (8 points) Calculate the current price of this Asian option using the risk-neutral pricing formula ETTE (max(K avg,0)]