You sell a European option with a current value of 100. The maturity time is 18 months, and the risk-free interest rate is 1%.

a) Describe the detailed replicating strategy in the case that the stock goes up after the first 6 months, up after the second 6 months and up after the third 6 months.

b) Describe the detailed replicating strategy in the case that the stock goes down after the first 6 months, down after the second 6 months and down after the third 6 months.

Use the diagram in the picture.

Call t = 18 months Stock 1 234.3992382 134.3992382 t= 12 months 176.45642 t = 6months 132.8369 118.5136018 18.5136018 t=0 100 89.21737998 59.92115814 40.07884186 67.1631 45.10882002 30.2964819 69.7035181 Call t = 18 months Stock 1 234.3992382 134.3992382 t= 12 months 176.45642 t = 6months 132.8369 118.5136018 18.5136018 t=0 100 89.21737998 59.92115814 40.07884186 67.1631 45.10882002 30.2964819 69.7035181