Name Page 5 3. [20 points] There is a stock to Sa-$50. In adhtly traded at P,- $60. The stock price can go either to S.

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Name Page 5 3 20 Points There Is A Stock To Sa 50 In Adhtly Traded At P 60 The Stock Price Can Go Either To S 1 (52.17 KiB) Viewed 16 times

Name Page 5 3. [20 points] There is a stock to Sa-$50. In adhtly traded at P,- $60. The stock price can go either to S. $70 or interested in purchasing a put option and a call option with the same exercise price of K-555 there is a risk-free bond with price of Pb -$0.95. Suppose you are price Stock Bond Call Put Pu 55 Su 1 CH P₁ 70 Pb - 0.95 Ca Pa Sa 1 50 [10 points] What are the payoffs for the call option Cu and Ca? How would you replicate these payoffs using the stock and the bond? What are the payoffs for the put option Pu and Pa? How would you replicate these payoffs using the stock and the bond? Solution :- (b) [10 points] What are the call and the put option prices if there is no arbitrage? 5