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The current stock price of XYZ Ltd ("XYZ") is $20. At the end of three months the XYZ stock price, St, will be either $17 or $24. The risk free interest rate is 15% p.a. continuously compounded. A European put option has a payoff based on the XYZ stock price at the end of the three-month period, St. The exercise price of the put is $25. The stock does not pay dividends. If required, assume risk-neutral valuation and all shares are infinitely divisible. There are three parts to this question. Use a one-period binomial model for all three parts. 0.5 uired Determine the "fair" value today of the put option based on the approach of the "hedge ratio" or a position in alpha number of shares and a position in the put option. Determine the "fair" value today of put option using the approach based on the pseudo- probability of upward and downward stock price movements. c) Determine the "fair" value today of the put option based on a replicating portfolio constructed by taking a position in shares and a riskless asset or a risk-free bond. The current stock price of XYZ Ltd ("XYZ") is $20. At the end of three months the XYZ stock price, St, will be either $17 or $24. The risk free interest rate is 15% p.a. continuously compounded. A European put option has a payoff based on the XYZ stock price at the end of the three-month period, St. The exercise price of the put is $25. The stock does not pay dividends. If required, assume risk-neutral valuation and all shares are infinitely divisible. There are three parts to this question. Use a one-period binomial model for all three parts. 0.5 uired Determine the "fair" value today of the put option based on the approach of the "hedge ratio" or a position in alpha number of shares and a position in the put option. Determine the "fair" value today of put option using the approach based on the pseudo- probability of upward and downward stock price movements. c) Determine the "fair" value today of the put option based on a replicating portfolio constructed by taking a position in shares and a riskless asset or a risk-free bond

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