no 2 and 3

t = 0.5, node d, and show that your hedge works at t= 1. 2. (15%) A one-month European put option on a non-dividend paying stock is currently selling for $2.5. The stock price is $47, the strike price is $50, and the risk-free interest rate is 6% per annum. Is there an arbitrage opportunity? If there is, what actions you will take today to make an arbitrage profit? 3. (10%) For a call option with strike price K, and time to maturity of T, please use the Black-Schole-Merton formula to find what price of the call would be if the volatility of the stock price is zero, i.e. o = 0. The Black-Schole-Merton formula for a call option price is as follows: your hedge works at t= 1. Please construct a riskless hedge portfolio at time Co = SoN(d1) - erTKN (d2) where In ( ) + (r +102) T d = NT d2 = di - OVT (p.s.) You need to consider both ITM and ATM/OTM cases. 4 (TERY