Question $2$

$(3)$

A discrete$-$time model is used to model both the price of a nondividend$-$paying.

stock and the short$-$term $($risk$-$free$)$ interest rate. Each period is one year.

At time $0,$ the stock price is $S_0=100$ and the effective annual interest rate is

$ro=5\%.$

At time $1,$ there are only two states of the world, denoted by $u$ and $d.$ The stock

prices are $S_u=110$ and $S_d=95.$ The effective annual interest rates are $r_u=6\%$ and

$r_d=4\%$

Let $C(K)$ be the price of a $2-$year $K-$strike European call option on the stock.

Let $P(K)$ be the price of a $2-$year $K-$strike European put option on the stock.

Determine $P(108)-C(108).$

$r_a=r_0{e}^k,p=\frac{(1+r)-d}{u-d}$ Please do question $2$