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1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing

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1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d : u=etd=1/u=et Assume t=1/12,r=.04 and that the volatility of the stock equals .40 (b) Estimate the price of a 4 or 5 month put option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d. Also, assume t=1/12 and that the volatility of the stock is .40 (c) Compare your results to the actual bid-ask midpoints. Why are they different? Which do you think is the most accurate? 1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d : u=etd=1/u=et Assume t=1/12,r=.04 and that the volatility of the stock equals .40 (b) Estimate the price of a 4 or 5 month put option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d. Also, assume t=1/12 and that the volatility of the stock is .40 (c) Compare your results to the actual bid-ask midpoints. Why are they different? Which do you think is the most accurate

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