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Unformatted text preview: u = 1 . 1 , d = 0 . 9, S = 100, r = 0 . 08, and time-steps of size 3 months. a) Compute the price of a European call, and the replicating portfolio ( S shares of stock, B invested in a bank account) for a strike K = 100 and for the four dierent maturities: 3 months (1 time-step), 6 months (2 time-steps), 1 year (4 time-steps) and 2 years (8 times-steps). For the 1-year and 2-year maturities, you only need to report the composition of the replicating portfolio for the two rst nodes. b) Comment the eect of the maturity on the option price (you do not have to compute the expected return on the option)....
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- Fall '09