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For all of Part I, consider a financial market consisting of one risk-less asset with...

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For all of Part I, consider a financial market consisting of one risk-less asset with an interest rate of 3% per annum with continuous compounding and one risky asset with an estimated volatility of 30% per annum. Today's price of the risk-less and risky asset is 1 and 87, respectively (all prices quoted in SEK). There is a fixed terminal horizon T of 3 years and throughout K = 95. Unless otherwise stated, the word price refers to today's arbitrage-free price. Final answers should be given without decimals. 1 For this question, you should use a three-period Binomial model for the market described above; the parameters should be appropriately chosen so as to correspond to the characteristics of the market. a) Price a European call option with strike K written on the risky asset and maturing at the terminal horizon

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