You plan to sell over the counter a bond that has the following payoff structure at its maturity T: ST + 1 [max(0, ST - So) - max(0, S1 - 105)], where S, is the price of stock S at time 1. The stock does not pay any dividend. You want to perfectly hedge your position building a replicating portfolio. The stock is currently traded at So = 100, whereas a risk-free bond with face value 100 maturing at T currently trades at 95. Besides, the following options on S, with maturity T, are liquidly traded on the market: Class Strike Put 90 Call 95 Put 100 Call 105 Price 11.7597 23.8584 16.6584 19.6477 (a) Which positions (long, short, number of units) must you take to replicate the bond's payoff with some of the market-traded instruments? 6) What is the fair value of the bond if lis 0.25? (Neglect potential default risk.) (c) Under different market conditions, could this bond trade at 100? You plan to sell over the counter a bond that has the following payoff structure at its maturity T: ST + 1 [max(0, ST - So) - max(0, S1 - 105)], where S, is the price of stock S at time 1. The stock does not pay any dividend. You want to perfectly hedge your position building a replicating portfolio. The stock is currently traded at So = 100, whereas a risk-free bond with face value 100 maturing at T currently trades at 95. Besides, the following options on S, with maturity T, are liquidly traded on the market: Class Strike Put 90 Call 95 Put 100 Call 105 Price 11.7597 23.8584 16.6584 19.6477 (a) Which positions (long, short, number of units) must you take to replicate the bond's payoff with some of the market-traded instruments? 6) What is the fair value of the bond if lis 0.25? (Neglect potential default risk.) (c) Under different market conditions, could this bond trade at 100