Use the binomial option pricing model to find the implied premium of a CALL option on...

Use the binomial option pricing model to find the implied premium of a CALL option on Wendy’s. Wendy’s stock is currently trading at $20.66. Have the model price at 10 day intervals for 3 nodes: 10 days, 20 days, and 30 days. The strike price is $18. The risk free rate is 2.5% and the volatility(standard deviation) of the stock is .40. Show the entire binomial tree.

Expert Solution

										21.0763 3.0763
									21.0687 3.0723
								21.0610 3.0684		21.0610 3.0610
							21.0534 3.0645		21.0534 3.0571
						21.0457 3.0605		21.0457 3.0531		21.0457 3.0457
					21.0381 3.0566		21.0381 3.0492		21.0381 3.0418
				21.0305 3.0527		21.0305 3.0453		21.0305 3.0379		21.0305 3.0305
			21.0229 3.0487		21.0229 3.0413		21.0229 3.0340		21.0229 3.0266
		21.0152 3.0448		21.0152 3.0374		21.0152 3.0300		21.0152 3.0226		21.0152 3.0152
	21.0076 3.0409		21.0076 3.0335		21.0076 3.0261		21.0076 3.0187		21.0076 3.0113
21.0000 3.0369		21.0000 3.0296		21.0000 3.0222		21.0000 3.0148		21.0000 3.0074		21.0000 3.0000
	20.9924 3.0256		20.9924 3.0183		20.9924 3.0109		20.9924 3.0035		20.9924 2.9961
		20.9848 3.0143		20.9848 3.0070		20.9848 2.9996		20.9848 2.9922		20.9848 2.9848
			20.9772 3.0030		20.9772 2.9956		20.9772 2.9883		20.9772 2.9809
				20.9696 2.9917		20.9696 2.9843		20.9696 2.9770		20.9696 2.9696
					20.9620 2.9804		20.9620 2.9730		20.9620 2.9657
						20.9544 2.9691		20.9544 2.9618		20.9544 2.9544
							20.9468 2.9579		20.9468 2.9505
								20.9392 2.9466		20.9392 2.9392
									20.9316 2.9353
										20.9240 2.9240

Calculated as per the COX-ROSS-RUBINSTEIN Method and as an American Style Option

jeff jeffy answered 1 year ago

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