quantitative methods in finance

A European put option with a strike price of 45 pesos matures at a year. The underlying has a volatility () of 20 percent per year and the spot price current is 50 pesos. The risk-free interest rate (r) is 5.60 percent by year. Divide the 1-year interval into 2 intervals of 6 months each and use the multiplicative tree with u and d given by: u=exp[(r22)+]d=exp[(r22)] i. It shows that u=1.172832 and d=0.883891. Calculate the probabilities of risk neutral. ii. Determine the price of the put by working the tree back. iii. Determine the price of the put using the formula that gives it as an average gave on the values of the payoff, brought to present value. iv. Describes the associated hedging strategy, i.e., it specifies how many units of underlying and how much debt you must maintain in each node after rebalancing launch the portfolio. A European put option with a strike price of 45 pesos matures at a year. The underlying has a volatility () of 20 percent per year and the spot price current is 50 pesos. The risk-free interest rate (r) is 5.60 percent by year. Divide the 1-year interval into 2 intervals of 6 months each and use the multiplicative tree with u and d given by: u=exp[(r22)+]d=exp[(r22)] i. It shows that u=1.172832 and d=0.883891. Calculate the probabilities of risk neutral. ii. Determine the price of the put by working the tree back. iii. Determine the price of the put using the formula that gives it as an average gave on the values of the payoff, brought to present value. iv. Describes the associated hedging strategy, i.e., it specifies how many units of underlying and how much debt you must maintain in each node after rebalancing launch the portfolio