In the binomial model with S₀ = 3, u=3/2, d=2/3 , and r = 1/4
consider a European call option with strike price K = 4, expiring at time 3. (a) Is the no-arbitrage condition satisfied for this model? Why?
(b) What are the risk-neutral probabilities?
(c) What is the no-arbitrage price of the call option at time zero? (d) Use the delta-hedging formulas to find all Δn's.
(e) Use put-call parity to find the no-arbitrage price of the corresponding put option at time zero (note that the corresponding put option has the same parameters as the call option: S₀ = 3, K = 4, expiration time is 3)