Should be held at each time by a replicating portfolio

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Reference no: EM131813631

Consider a stock whose initial value is S0 = 2, with factors u = 3/2, d = 1/2 and interest rate r = 5%. Use the method described in Section 1.3 (that is, dene s and vi(s)) to find the value at time 0 of a European call option with expiration time t = 2 and strike price K = 1, and nd also the number of shares of stock that should be held at each time by a replicating portfolio.

Reference no: EM131813631

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