What is the replicating portfolio today of the american call

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Question - The price of a stock today is $30. After every 6 months, it can either go up by a factor U = 1.25 or go down by a factor D = 0.75. The interest rate is 9% per annum, continuously compounded. Consider an American call with a strike price of $32 and time to maturity of 1 year.

Build a two-period binomial tree to find the price of the American call. What is the replicating portfolio today of the American call?

a. Buy 0.4872 shares and borrow $17.93

b. Buy 0.5683 shares and borrow $13.16

c. Buy 0.5052 shares and borrow $16.22

d. Buy 0.5364 shares and borrow $16.85

e. Buy 0.5613 shares and borrow $12.07

Reference no: EM133159275

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