Question 8: Assume S = $35.00, K = $34.00, o = 0.30, r = 0.08, t = 1 year, 8 = 0.00, and h = 0.5. Construct a 2-period binomial tree. Calculate the following: a) Risk-neutral probability p* of prices going up b) Using Monte Carlo valuation, calculate the price of the Asian Arithmetic Average Price Call Option. Consider stock price averages computed by averaging the 6-month and 1- year prices. Solution: Question 8: Assume S = $35.00, K = $34.00, o = 0.30, r = 0.08, t = 1 year, 8 = 0.00, and h = 0.5. Construct a 2-period binomial tree. Calculate the following: a) Risk-neutral probability p* of prices going up b) Using Monte Carlo valuation, calculate the price of the Asian Arithmetic Average Price Call Option. Consider stock price averages computed by averaging the 6-month and 1- year prices. Solution