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Consider a two-period binomial model for the stock price with both periods of length one year....

Consider a two-period binomial model for the stock price with both periods of length one year. Let the initial stock price be S0 = 100. Let the up and down factors be u = 1.25 and d = 0.75, respectively and the interest rate be r = 0.05 per annum. If we are allowed to choose between call and put option after one year, depending on the up and down states (head and tail respectively), which option do you choose if you are in the up state and which option do you choose if you are in the down state. Consider the strike for this option is 100. Show all calculations.

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ekkarill92 answered 1 year ago
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