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Problem 1 : Use the following parameter values to price a call and put option by applying the Delta Hedging, Replicating Portfolio, and Risk Neutral

Problem 1: Use the following parameter values to price a call and put option by applying
the Delta Hedging, Replicating Portfolio, and Risk Neutral Valuation approaches:
S= current price of (non-dividend paying) underlying asset =$50;
K= exercise price =$50;
r= annualized riskless rate of interest =3%;
= annualized volatility (standard deviation of return) for the underlying asset =.1;
t= length of time-step in years =1;
u= one plus the rate of return on the underlying asset after one up move =et2=
e.112=1.1052; and
d= one plus the rate of return on the underlying asset after one down move =e-t2=
e-.112=.9048.
Problem 2: Now suppose there are 2 timesteps, but the length of each timestep is 6 months
rather than 1 year. What are the arbitrage-free values for a call and put, based on these
parameter values?
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