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Suppose the current price of a non-dividend paying stock is S0 =100. Suppose that we...

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Finance

Suppose the current price of a non-dividend paying stock is S0 =100. Suppose that we have a 6- month European put option struck at 95. Assume that at each period the stock may go up by 10% or down by 10%. The risk-free rate of interest is (zero) 0%. Based on a two-period binomial model, answer the following questions (show all the details of your calculations and present your results with four decimal places.) Recall that the probability p is given by = (^rt )( ). a) Calculate the value of the upward (u) and the downward (d) moves b) Draw a binomial tree for the underlying asset, calculate and show its prices at all nodes c) Draw a binomial tree for the put option, calculate its current price, showing all intermediate steps needed to obtain the result d) Work forward on the tree and show that there is a self-financing trading strategy that replicates the value of the European put option at each node of the tree

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