You are given the following information on a compound CallOnPut option: The continuously compounded risk-free rate

Question:

You are given the following information on a compound CallOnPut option:

• The continuously compounded risk-free rate is 5%.

• The strike price of the underlying option is 43.

• The strike price of the compound option is 3.

• The compound option expires in 6 months.
• The underlying option expires 6 months after the compound option.
• The underlying option is American.

Today So = 40.00 6 months SH = 50.80 SL = 33.20 12 months SHH = 64.52 SHL = 42.16 SLL = 27.56

Based on the above binomial stock price tree, calculate the value of the compound option.

(A) Less than 3.00

(B) At least 3.00, but less than 3.50

(C) At least 3.50, but less than 4.00

(D) At least 4.00, but less than 4.50

(E) At least 4.50

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: