1. A futures price is currently 50. At the end of six months it will be either 56 or 45. The risk-free interest rate is 3% per annum (continuously compounded). What is the value of a six-month European put option with a strike price of 49? How would you hedge this option if you bought it?
2. A futures price is currently 120. It is known that at the end of three months the price will be either 100 or 140. What is the value of a three-month European call option on the futures with a strike price of 122 if the risk-free interest rate is 5% per annum (continuously compounded)? How would you hedge this option if you sold it?