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Question 3. (14 points) Price a put option with a one-step binomial tree. Suppose Se 50, x 40, 1+r-1.06. The two possibilities of St are

Question 3. (14 points) Price a put option with a one-step binomial tree. Suppose Se 50, x 40, 1+r-1.06. The two possibilities of St are 70 and 30. a. Draw the stock price and put option value trees. What is the hedge ratio of the put? (5 points) What is the present value of the no-arbitrage portfolio?(5 points) What is the fair value of the put option? (4 points)

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