Consider a two-period binomial tree with the following parameters: S = 100, u = 1.10, d =
Question:
Consider a two-period binomial tree with the following parameters: S = 100, u = 1.10, d = 0.90, and R = 1.03. Find the prices of:
(a) A knock-out call option with a strike of 95 and a barrier of 90.
(b) A knock-in call option with a strike of 95 and a barrier of 90.
(c) A vanilla call option with a strike of 95.
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To find the prices of the different options we need to calculate the option values at each node of the binomial tree and work backward a Knockout Call ...View the full answer
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