In: Finance
Imagine that google's stock price will either rise by one-third
or fall by 25% over the next six months. Assume the 6 month
risk-free interest rate is 1%. Both the stock price and the
exercise price are $530.
1. Calculate the value of the 6 month call option using the
replicating portfolio method.
2. Calculate the value of the 6 month call option using the
risk-neutral method.