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Homework answers / question archive / There are call and put options on BB AS with a redemption price of 55 dollars and one more year decay

There are call and put options on BB AS with a redemption price of 55 dollars and one more year decay

Finance

There are call and put options on BB AS with a redemption price of 55 dollars and one more year
decay. Today's stock price is $ 50. At the end of the year, the share price will either be 30
dollars or $ 80. Investors can invest or borrow at the risk-free interest rate of 3% above
period.

Explain how you can price a call option (call option) and a put option
(put option) by creating strategies that replicate / recreate the cash flows to
these options at maturity.

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