Proposition 7.10. The price of a European call option with strike price K and time of maturity T is given by the formula II(t) = F(t, S(t)), where F(t,s) = sN[d1(t, s)) - eT(T-1) KNd2(t, s)). Here N is the cumulative distribution function for the standard normal distribution and dit, s) = + OVT-t d2(t, s) = dit,s) - OVT-t. (a) (26 marks) Show Proposition 7.10 for European put option. (You can follow the call option example discussed in the lectures.) (b) (10 marks) It is given that o = 0.2, r = 6%. S(O) = 18, K = 16, and T = 1 year. Compute the price of this option at time t = 0, i.e., IIO). Proposition 7.10. The price of a European call option with strike price K and time of maturity T is given by the formula II(t) = F(t, S(t)), where F(t,s) = sN[d1(t, s)) - eT(T-1) KNd2(t, s)). Here N is the cumulative distribution function for the standard normal distribution and dit, s) = + OVT-t d2(t, s) = dit,s) - OVT-t. (a) (26 marks) Show Proposition 7.10 for European put option. (You can follow the call option example discussed in the lectures.) (b) (10 marks) It is given that o = 0.2, r = 6%. S(O) = 18, K = 16, and T = 1 year. Compute the price of this option at time t = 0, i.e., IIO)