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Problem 3: Consider a stock which follows the binomial model with upward rate 1.2 and downward rate 0.7. Consider an Europena call option with strike

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Problem 3: Consider a stock which follows the binomial model with upward rate 1.2 and downward rate 0.7. Consider an Europena call option with strike price 100 yen and maturity 1 year. Assume that the interest rate is 5% and the stock price at time 0 is 100 yen. (i) Calculate the option price and its hedging strategy. (ii) Calculate the risk neutral probability

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