Question 3. The Binomial Option Pricing The spot price of SPY is currently $200 (i.e. So = $200). The volatility of SPY is 30% (i.e. o=0.30). We are interested in valuing SPY option at the end of 3 months (i.e. At or T= 3/12 = 0.25). The risk-free rate with continuous compounding is 4% per annum (i.e. r = 0.04). Question 3 - Part (A) Arbitrage Portfolio Approach| Apply the Arbitrage Portfolio approach with one-step binomial tree and calculate the value of a 3-month European CALL option on SPY with an exercise/strike price of $160 i.e. K = $160. Question 3 - Part (B) (Risk-Neutral Valuation Approach Apply the Risk-Neutral Valuation approach with one-step binomial tree and calculate the value of a 3-month European CALL option on SPY with an exercise/strike price of $160 (i.e. K = $160). Verify that the Risk-Neutral Valuation approach can provide the same result as in Part (A) of Question 3. Question 3. The Binomial Option Pricing The spot price of SPY is currently $200 (i.e. So = $200). The volatility of SPY is 30% (i.e. o=0.30). We are interested in valuing SPY option at the end of 3 months (i.e. At or T= 3/12 = 0.25). The risk-free rate with continuous compounding is 4% per annum (i.e. r = 0.04). Question 3 - Part (A) Arbitrage Portfolio Approach| Apply the Arbitrage Portfolio approach with one-step binomial tree and calculate the value of a 3-month European CALL option on SPY with an exercise/strike price of $160 i.e. K = $160. Question 3 - Part (B) (Risk-Neutral Valuation Approach Apply the Risk-Neutral Valuation approach with one-step binomial tree and calculate the value of a 3-month European CALL option on SPY with an exercise/strike price of $160 (i.e. K = $160). Verify that the Risk-Neutral Valuation approach can provide the same result as in Part (A) of Question 3