I am having a bit of trouble with a problem I've been given.
Consider a market which only trades a stock and forward contracts. There's only time 0 and 1.
Initial stock price S_0 is 10, the forward price F = 12, and at time 1, stock takes the price of either 11 or 14.
So I am asked to replicate a call option on the stock with strike price 13 with maturity at 1 and find the arbitrage free price of the call.
Some searching for similar problems told me to buy stock and sell short on a bond to replicate the call, but since a forward contract that can either benefit or incur a loss is in place of the bond, I am not so sure what to do. So I am replacing shorting a bond to shorting a forward contract? The problem doesn't give any probabilities on whether a stock would 11 or 14, so I am getting more and more confused.
I am still learning basics of finance, so any insights to understand the problem would be real helpful.