The price of one share of Meridian Tech, the hedge fund of hot biotechnology stocks, is currently $100. The volatility of returns on Meridian is 30% per annum. The risk free rate is 2%. Suppose that put and call options on Meridian are traded on CBOE. The exercise price of the put option is $98 and the exercise price of the call option is $102.

a.Use the Black Scholes model to price the put option on Meridian;

b.Use the Black Scholes model to price the call option on Meridian;

c.Use the Black Scholes model to find deltas and gammas for both options;

d.Construct a gamma-delta neutral portfolio of Meridian shares, and call and put options mentioned above.