QUESTION 4 Consider European call and put options with maturity T and strike x (the same for both puts and calls) written on a stock with current price so. Let the risk-free rate be denoted by r >0 and assume continuous compounding of interest. a) What is the difference between the current price co of the call option and the current price po of the put option? Explain your answer. (7 Marks) b) Can a portfolio consisting of one call option and risk-free zero-coupon bonds with maturity T cost less than one stock? Explain your reasoning. (7 Marks) c) Suppose the stock price evolves according to Brownian motion with standard deviation o > 0. Let denote the cumulative standard normal distribution and give an explicit formula for the price co of the call option. (6 Marks) (Total 20 marks) END QUESTION 4 Consider European call and put options with maturity T and strike x (the same for both puts and calls) written on a stock with current price so. Let the risk-free rate be denoted by r >0 and assume continuous compounding of interest. a) What is the difference between the current price co of the call option and the current price po of the put option? Explain your answer. (7 Marks) b) Can a portfolio consisting of one call option and risk-free zero-coupon bonds with maturity T cost less than one stock? Explain your reasoning. (7 Marks) c) Suppose the stock price evolves according to Brownian motion with standard deviation o > 0. Let denote the cumulative standard normal distribution and give an explicit formula for the price co of the call option. (6 Marks) (Total 20 marks) END