Let S = $65, r = 6% (continuously compounded), d = 1%, s = 30%, T...

Let S = $65, r = 6% (continuously compounded), d = 1%, s = 30%, T = 0.5. In this situation, the appropriate values of u and d are 1.17645 and 0.87153, respectively. Using a 2-step binomial tree, calculate the value of a $75-strike European put option. CORRECT ANSWER= $11.214. Please show all your work, NO EXCEL :)

Expert Solution

Solution.>

The price of the 6-month European put option is $11.215

Although you have mentioned no excel, but I have solved this question in Excel as all my students clearly understand Binomial Solutions from this excel and I have also attached the formula sheet used in solving the question. It will be very easy for you to understand from this. If you still have any doubt, kindly ask in the comment section.

The formula used are:

Note: Give it a thumbs up if it helps! Thanks in advance!

jeff jeffy answered 2 years ago

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Let S = $65, r = 6% (continuously compounded), d = 1%, s = 30%, T...

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