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1. (a) Derivation of Black-Scholes-Merton Option Pricing Formula from Binomial Tree Suppose that a binomial tree with n time steps used to value a European call option with strike price K and life 1. Each step is of length Tin. Suppose there have been j upward movements and n -j downward movements on the tree, and let u is the proportional up movement, d is the proportional down movement, and So is the initial stock price. Assume a risk-neutral world with risk-free rate, r. (Refer to Derivation of Black-Scholes-Merton Option Pricing Formula from Binomial Tree") For the statistics U2 given by equation (12.6), show that as n + it converges to in +(r-o/2)T) U2 = N OVT ( ) ) . 1. (a) Derivation of Black-Scholes-Merton Option Pricing Formula from Binomial Tree Suppose that a binomial tree with n time steps used to value a European call option with strike price K and life 1. Each step is of length Tin. Suppose there have been j upward movements and n -j downward movements on the tree, and let u is the proportional up movement, d is the proportional down movement, and So is the initial stock price. Assume a risk-neutral world with risk-free rate, r. (Refer to Derivation of Black-Scholes-Merton Option Pricing Formula from Binomial Tree") For the statistics U2 given by equation (12.6), show that as n + it converges to in +(r-o/2)T) U2 = N OVT ( ) )