Question

In: Finance

Draw the binomial tree listing only the option prices at each node. Assume the following data...

Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $40, S = $37.90, r = 5.0%, σ = 0.35

Solutions

Expert Solution

u = e^(0.35*(0.25)^(1/2))=1.19124

d = 1/u = 1/1.19124=0.83946

jeff jeffy answered 1 month ago
Next > < Previous

Related Solutions

Draw a (single) binary tree T, such that  Each internal node of T stores a...
Draw a (single) binary tree T, such that  Each internal node of T stores a single character  A preorder traversal of T yields ALGORITHMS  An inorder traversal of T yields GOLATIHRMS
Consider the following type of binary trees: data Tree a = Leaf a | Node (Tree...
Consider the following type of binary trees: data Tree a = Leaf a | Node (Tree a) (Tree a) A tree is balanced if the number of leaves in the left and right subtree of every node differ by at most one. Write a Haskell function balanced that returns whether a tree is balanced or not. balanced :: Tree a -> Bool
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and...
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and label the stock prices and derivative values at each node. The option expires in 6 months. The interest rate is 10% annually continuously compounded. The Strike Price (K) is 100. The spot price is at 100. U= 1.2 and D= 0.8 for each quarterly period. The payoff of this derivative is (ST/K). By this I mean that the payoff is the price of the...
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and...
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and label the stock prices and derivative values at each node. The option expires in 6 months. The interest rate is 10% annually continuously compounded. The Strike Price (K) is 100. The spot price is at 100. U= 1.2 and D= 0.8 for each quarterly period. The payoff of this derivative is (ST/K). By this I mean that the payoff is the price of the...
(IN C) Write the code to manage a Binary Tree. Each node in the binary tree...
(IN C) Write the code to manage a Binary Tree. Each node in the binary tree includes an integer value and string. The binary tree is sorted by the integer value. The functions include: • Insert into the binary tree. This function will take in as parameters: the root of the tree, the integer value, and the string. Note that this function requires you to create the node. • Find a node by integer value: This function takes in two...
1. Draw a binary search tree as a single root node holding a string as the...
1. Draw a binary search tree as a single root node holding a string as the data element. Each string inserted into a node in the tree will be for a character in a game. Then, draw a new tree each time you insert a new node into the tree holding a string Insert 4 nodes total, including the root. This means the new nodes will need to be inserted at the correct child to maintain the BST property.
A binary tree is a rooted tree in which each node has at most two children....
A binary tree is a rooted tree in which each node has at most two children. Show by induction that in any binary tree the number of nodes with two children is exactly one less than the number of leaves.
]Using either a Black Scholes or Binomial Tree option calculator on the internet, what is the...
]Using either a Black Scholes or Binomial Tree option calculator on the internet, what is the value of a 6 month put on the money (current price) Tesla Stock if we use volatility of .50, no dividend, and a risk free rate of 1%?
Calculate u, d and p when a binomial tree is constructed to value an option on...
Calculate u, d and p when a binomial tree is constructed to value an option on a foreign currency. The tree step size is one month, the domestic interest rate is 0.50% per annum, the foreign interest rate is 0.10% per annum, and the volatility is 12% per annum. Use a three step binomial tree to value a 3m European call option on EUR/USD when spot is 1.08 $ per €, strike is 1.10 $ per €.
Consider the following struct that represents a node within a binary tree: struct Node { int...
Consider the following struct that represents a node within a binary tree: struct Node { int data; // Data of interest Node *left // Link to left subtree (nullptr if none) Node *right ; // Link to right subtree (nullptr if none) }; Complete the following function that computes the number of elements in a binary tree: // Counts the number of elements in the binary tree to which t points. // Returns the number of elements. int size(Node *t)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT