Question
In: Finance
A stock price is currently $50. It is known that at the end of three months,...
A stock price is currently $50. It is known that at the end of three months, it will be either $55 or $45. The risk-free interest rate is 12% per annum with continuous compounding. What is the value of a three-month European call option with a strike price of $51?
Solutions
Expert Solution
Calculation of Payoff of European call option at end three months:
If stock price on maturity is $55
If stock price on maturity is $45
Calculation of Risk neutral probability of price up(u) and price down (d)
where,
S = current stock price
r = risk free rate
t = maturity in year
P(u) = Probability to up price
and
Calculation of Value of European call option
jeff jeffy answered 2 hours agoRelated Solutions
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A stock price is currently $50. It is known that at the end of two months...
A stock price is currently $50. It is known that at the end of
two months it will be either $53 or $48. The risk-free interest
rate is 10% per annum with continuous compounding. What is the
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please show all work
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one year it will be either $40 and $60. The exercise price of a
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A stock price is currently $50. It is known that at the end of one year...
A stock price is currently $50. It is known that at the end of
one year it will be either $40 and $60. The exercise price of a
one-year European call option is $55. The risk-free interest rate
is 5% per annum.
a. Construct a binomial tree to show the payoff of the call
option at the expiration date.
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A stock price is currently $50. It is known that at the end ofone year...
A stock price is currently $50. It is known that at the end of
one year it will be either $40 and $60. The exercise price of a
one-year European call option is $55. The risk-free interest rate
is 5% per annum. Construct a binoamial tree to show the payoff of
the call option at the expiration date. (5%) Based on the binomial
tree model, what is the value of the call option? (15%) Address the
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A stock price is currently $50. It is known that at the end of one year...
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one year it will be either $40 and $60. The exercise price of a
one-year European call option is $55. The risk free interest rate
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